In this assignment (10% of Final Grade) you write individually an article for the first edition of The Urban Economist, on a topic in the field of urban economics that has been in the news in the last month. You are asked to reflect on this news item, while taking the economic literature aboard. As...
Jelle Sierkstra (2704853)
Amsterdam
Amsterdam’s housing market in a As mentioned, the average transaction
prices
bubble?
The Dutch housing market has been
overheated for some time (DNB, 2022).
During the period 2021Q2 to 2022Q2,
Amsterdam experienced the highest growth in
housing prices among European cities. But
recently it has made a potential turnaround.
According to NVM-makelaars (2022Q3), the
average transaction price of residences in
Amsterdam decreased by 8,2% compared to
the previous quarter. of
houses
Is Amsterdam’s housing market in a bubble, in
possibly on the verge of bursting? And does this
differ from other major cities in the Netherlands? Amsterdam are falling compared to the previous
quarter. This could be caused by the following
The term “bubble” may be defined as an factors: housing shortage, growing mortgages
upward price movement over an extended period rates, increasing energy costs, and inflation.
that then implodes (Aliber & Kindleberger, 2015). According to NVM-makelaars (2022), 90% of the
The global financial crisis (2007-2008) has shown available houses were overbid in the second
the importance of determining whether or not a quarter of this year. Now it is about 79%. In
housing market is in a bubble. Inaccurate addition, ABN Amro (2022) forecasts an average
detection of speculative behaviour in housing 2,5% decrease of house prices in the Netherlands
markets makes it impossible to take next year. Especially in Amsterdam, Rotterdam,
countermeasures, which can lead to negative Utrecht, and Den Haag the price correction will be
consequences for the financial stability of larger, in accordance with housing market
households (Tomal, 2021). economist Philip Bokeloh.
The analysis of housing market bubbles is House price index trends of major cities in the
mainly based on five standardized indices: price-to- Netherlands show roughly the same pattern (CBS,
income (McMillan & Speight, 2010) and price-to- 2022). For Amsterdam, Rotterdam, Utrecht, and
rent (Clark & Lomax, 2020), mortgage-to-GDP Den Haag the average annual price growth is
ratio, economic distortion, and relative price-city- particularly strong between 2021Q2 and 2022Q2.
to-country indicator (UBS, 2022). After estimating If you compare historical bubbles to these charts
these, the risk of a property bubble can be they look similar. But this pattern is more
determined using a "bubble index" (see figure for pronounced for house prices in Amsterdam than in
corresponding risk-based classifications). other cities. Therefore, a housing bubble is likely
to be in all the cities discussed, with Amsterdam's
Particularly in Amsterdam, nominal rents housing market showing the highest bubble risk.
and incomes did not increase at the same pace as In addition, the current price decline could
house prices did. In fact, house prices have grown continue and might lead to the bursting of a
so fast in 2022 that UBS classified the price- housing bubble. The future is uncertain, but
income and price-rent ratios as worrying. Looking according to Arnoud Boot a Dutch economist
at these ratios separately, it is reasonable to professor: “Chances are prices will soon pick up
believe that there is a price bubble in Amsterdam. again. The city remains popular." (Het Parool,
From another perspective, the mortgage-to-GDP 2022).
ratio and economic distortion seem fair-valued in
accordance with UBS. To conclude, the latest trends and
forecasts combined with the bubble index could
When considering all five standardised suggest that Amsterdams’ housing market is in a
indices, the estimated bubble index for bubble, which is at a preliminary stage of bursting.
Amsterdam’s housing market is 1,62 (as of The same applies to other major cities in the
2022Q2, see figure for historical development of Netherlands, but with a lower bubble risk. It
index scores). In this case, the risk of a property cannot be proved until it burst, yet it serves as a
bubble is high. But the existence cannot be proved wake-up call for policy makers.
unless it burst.
References
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