‘Housing system up for renovation’

Photo: MartinD, Wikicommons

The Dutch housing system has a good international reputation, but according to recently appointed professor Marja Elsinga (Housing Institutions and Governance at TPM), the system is in urgent need of an overhaul.

When professor Marja Elsinga studied housing ecology at Wageningen University, she focussed on the influence of the built environment on people. After graduating in 1989, she shifted her focus from ecology to economy, because it is no longer the architects who dominate the world of construction and housing. Financial institutions have taken their place. Elsinga (Technology, Policy and Management) argues: “Economic science dominates the analyses of the housing market.”

Elsinga wrote her PhD thesis (cum laude) ‘Home ownership for low-income groups’ (1995) under the supervision of Professor Hugo Priemus, Jan van Weesep and Peter Boelhouwer. More than a decade later mortgages for low-income groups were at root of the worldwide financial crisis. For Prof. Elsinga the crisis illustrates what can go wrong if moneymaking is the only thing that counts. She explains how mortgage banks in the US, on the hunt for new clients, discovered people earning low incomes who also wanted to share in the American Dream of home ownership. Special products were developed for these low income earners at low initial interest rates that would slowly rise. Not much of a problem as long as the underlying value of the homes continued to rise. But they didn’t. By that point, the mortgage banks had ‘packaged’ the risky mortgages and passed them on to other banks. Elsinga continues: “The US stretched the risks in the housing market to the maximum and then sold them to Europe.”

Dutch housing policy has a good international reputation. International students especially come to Delft attracted by a housing system that is under pressure to change, according to Prof. Elsinga. One pillar is the role of housing associations that not only provide dwellings for people with lower and middle incomes, but which also participate in keeping the inner cities liveable. “They have a good reputation in urban renewal,” the professor says. Another Dutch peculiarity is the fact that home owners may subtract the interest they pay on their mortgages from their income tax. According to Elsinga, this ‘mortgage interest deduction’, originally a 19th century invention to allow owners of large rental dwellings a tax benefit, has corrupted the housing market.

So where did it go wrong?
“The tax authorities should never have agreed in ‘saving mortgages’ that allow you to deduct the maximum amount of interest over the entire 30 years. This is just one example of a host of products especially developed to have a maximum tax benefit. But it corrupts the system. Home ownership was encouraged by the government to make people financially secure in old age. Instead, what the system now does is to encourage people to have maximum mortgages and not build up any equity. Young households with interest-only mortgages [interest is paid only on the debt, but the debt itself remains, ed.] are in danger. When the house prices go down, you start with negative equity. When you then have to move house for reasons of work or relationships, you share a debt instead of a financial security. All the experts agree – and they don’t often agree – that something must change in the mortgage interest deduction.”

And what about the other Dutch pride: the housing associations?
“The associations used to play an important role in urban renewal, but the present right wing government wants to reduce their role. The associations are to sell part of their properties and increasingly allocate dwellings to lower income groups. Housing associations are turned into a safety net that only provides housing for the most vulnerable people. But we have a tradition, like Switzerland, Austria and France, in a much more corporatist model where housing associations not only provide affordable housing but also participate in urban policy and urban renewal. I plead to recognise that role and find a way to give it a future.”

Professor Marja Elsinga delivers her inaugural address on Friday, 4 March in the Aula at 15:00 hours.