IVBN: Rethinking pays off, even for the government
This column was originally written in Dutch. This is an English translation.
In the debate on public housing and the living environment, costs often take precedence. Every proposal is measured against the yardstick of budgetary discipline. Rightly so, because budgetary discipline ensures healthy public finances and stability.
By Judith Norbart, Director, IVBN
However, good policy is not just about what it costs, but also what it delivers. Investing in attractive city centres, future-proof offices and vibrant residential areas is rarely just an expense. It is a flywheel for economic activity, social impact and tax revenue. We see this effect in the housing market and also in investments in other urban functions. That is why they deserve recognition as a stimulus, not as an expense.
The underestimation of returns
When institutional investors invest, whether in housing, shops, commercial premises or offices, this generates employment, local spending and tax revenues. These effects are often ignored in political decision-making. The costs of a measure are taken into account, but the returns are rarely considered. So-called second-order and income effects, the indirect consequences of a policy measure and the additional tax revenues from a tax reduction, are hardly ever discussed. Yet it is precisely these effects that guide sensible choices.
The Netherlands has a high transfer tax rate, certainly by international standards: 10.4%. A reduction is often dismissed as too costly for the treasury, but that is a missed opportunity. Lower tax thresholds can actually stimulate the housing market and investment in a healthy, vibrant city centre. They accelerate transactions, unlock investment and create space for new construction. This additional economic activity means extra transfer tax, VAT and payroll tax. It also delivers social added value, because it contributes to well-being and happiness, reduces stress and uncertainty, and thus indirectly also reduces healthcare costs. Those who only look at the direct costs miss these benefits. In this way, policy is assessed on its negatives, while the positives remain out of sight.
From short-term to long-term
In the case of complex sales of housing portfolios – essential for the financing of new rental properties – the high transfer tax rate weighs heavily on feasibility. As a result, investors are more likely to opt for “divestment”, resulting in a loss of rental properties. In the case of new construction, it reduces the final value and thus the willingness to invest. As a result, the transaction volume on the residential investment market has fallen sharply and revenue from transfer tax is lagging behind the budget.
So what if we recognise that investing in the housing market not only costs money, but also generates money? Then the debate shifts from defensive to constructive and from contraction to growth. Not investing also costs money: it slows economic growth, puts pressure on healthcare and facilities, affects the liveability of cities and undermines citizens' confidence in policy. Those who only look at today's expenditure underestimate the costs of tomorrow's stagnation. This is not only economically unwise, but also socially unsustainable.
Earning effects are not a trick
Second-order and earning effects are not wishful thinking or lobbyist rhetoric, but reality. They are visible in cities where housing construction continues thanks to investing pension funds. But also in neighbourhoods where sustainability is progressing more quickly because long-term investors are willing and able to invest in the living environment, benefiting entire areas. This requires a policy environment that makes investment attractive: with stable and competitive tax rules, room for returns, and recognition that the market and government reinforce each other.
From reflex to vision
Anyone who wants to make investments possible must therefore dare to count on the returns. This requires looking beyond the “annual accounts”, political courage and decision-making. And a vision that lasts longer than one term of office. Those who assess policy solely on the basis of budgetary accounting rules are missing opportunities. Not everything that yields a return is visible in the first budget year. Our living environment deserves a government that looks beyond the initial cost and dares to invest in earning capacity.