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The Dynamics of Home Ownership and Housing Derivatives in the Netherlands

This comprehensive analysis explores the intricacies of home ownership and housing derivatives in the Netherlands. It evaluates the risks associated with home ownership, types of housing derivatives, and the impact of government policies on the market. The paper delves into historical and recent housing data, comparing the Netherlands with France and the UK. It addresses various types of risks in the housing market and investigates whether there is potential for housing derivatives in Holland, considering consumer demand and investor interest.

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The Dynamics of Home Ownership and Housing Derivatives in the Netherlands

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  1. Housing Derivatives • Piet Eichholtz

  2. Housingderivatives • The risk of home-ownership • Home-ownership in the Netherlands • The hart of the matter • Types of housing derivatives • Will there be housing derivatives in Holland? • Enter Sheet: • Real price index 62-94

  3. The risk of home-ownership • Recent figures • Netherlands, France and UK • Historic figures • Herengracht index • Types of risk: • Total risk • Market risk • Specific risk • - within residential market • - national and international • - with respect to other wealth-components

  4. Correlation coefficients of annual nominal returns • based on the weighted repeate sales indices for 1974-1995 • Fr Gr Dr Ov Ge Ut Nh Zh Nb Li NL • Fr - • Gr .87 - • Dr .84 .84 - • Ov .86 .87 .85 - • Ge .88 .91 .90 .93 - • Ut .84 .86 .87 .88 .95 - • Nh .84 .87 .87 .88 .95 .97 - • Zh .86 .88 .87 .89 .96 .96 .96 - • Nb.89 .90 .88 .91 .96 .95 .95 .95 - • Li .67 .70 .70 .74 .76 .74 .75 .75 .75 - • NL .89 .91 .90 .93 .98 .95 .95 .96 .96 .75 -

  5. Summary Statistics • Period 1975-1995 • Stocks Bonds Homes • Average Return 12.99% 7.85% 7.74% • Standard Deviation 13.14% 6.72% 10.01% • Correlation Coefficients • Stocks 1.00 • Bonds 0.24 1.00 • Homes 0.01 0.20 1.00 • Inflation 0.02 -0.01 0.09 • Enter Sheet: • home-ownership-income

  6. Availability of homes for lower incomes • Subsidized Sales of Segmentation Competition • New houses Rentals Owner market Rentals • Germany +/- - -- • Netherlands ++ -- • Sweden ++ - • France ++ -- • Denmark - +/- + • US - +/- ++ + • Canada+ • Belgium ++ + - - • UK - ++ ++ +

  7. Financial Instrument of Governments • Savings- Unique Continuous Low • Facilities Support Support Interest rate • Germany + - - + • Netherlands - + + + • Sweden - + • France + - - + • Denmark + - - - • US + • Canada+ • Belgium - + - + • UK - + - -

  8. Home-ownership in the Netherlands • Past and Present • Relationship with income • Financing • Governmental interference • Why? • How?

  9. Tax treatment of Home-ownership • Rental value Interest deduction • Germany none none • Netherlands forfait unlimited • Sweden 2% first part unlimited • 8% higher part • France none tax-credit (25%) • max: 5yrs, amount, income • Denmark 2.5% < 1.3 mln tax credit 50% • 7.5% > 1.3 mln • US none max: mortgage debt • Canada none none • Belgium forfait max: rental value • UK none limited to first £30,000

  10. The hart of the matter • Specific risks are the cost of home-ownership • Stimulating home-ownership for low incomes • How can this be done? • For whom does this apply?

  11. Types of housing derivatives • Insurance: Home equity insurance • Options/futures • Housing trusts • How does this work? • Cash-settlement on indices

  12. Will housing derivatives arise in Holland? • Discussion • Are the investors? • Is there consumer demand? • What will insurance companies do? • Are there politicians that understand the topic?

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