Amsterdam Think Tank

EU Rental Housing a Focus

By Yardi Blog Staff on Dec 6, 2019 in Global

AMSTERDAM – Terrence Wong (Yardi), Remco van de Wetering (Newomij), Hans Touw (Redevco), Robert-Jan Reeuwijk (CBRE) and Jaap van der Bijl (Altera) were recently invited to discuss the impact that social issues such as sustainability and affordability have on the value of residential property.

According to Reeuwijk, the current housing market places even greater emphasis on the importance of an objective valuation of (properties) in a residential property portfolio.

“When determining value, you use multiple sources so that you can look at standard parameters such as vacancy values or rental values. Then, using databases you can add new quality-defining elements such as the year of construction, the energy label and the location of the complex in question.”

Transactions

Van de Wetering states that the assessment of quality – and thus of value – has always been an issue in transactions, but he places even more emphasis on this fact for acquisitions.

“More and more restrictions are being introduced at a local level for the mid-rental market segment and even then we don’t exactly know where the government wants to go in terms of regulation. But in determining the value of a portfolio, it is important to be aware of this both for the investors and the end users.”

End user

According to Touw, this depends on which definition you attribute to the term “end user.”

“In my experience you are talking about the tenant. When determining quality, you start with the question of what the tenant’s experience is of this property, rather than just determining how good you think the product is for the tenant through the lens of the provider.”

Measurable

“What represents quality for one investor, does not for another,” asserts Van der Bijl.

“As property investors, we want to measure, manage and make adjustments, which is why we have developed a quality assessment method. If you do not make quality measurable, the property is perhaps not going to provide the comfort, which the tenant might expect. The quality of living that is experienced also plays a role in what we call ‘living as a service.’ If, as a tenant, you pay 11,000 euros per annum for a mid-rental property, then it must add up to being more than just a roof over your head. That’s the way we want to set up the whole chain.”

Furthermore, corporations seem to be more comfortable than institutional investors and private tenants, but according to Wong, nothing could be further from the truth.

“The idea is fast emerging that a housing association property is in any case going to be rented out, in view of all the waiting lists. But it is particularly important for them to have a clear picture of systematic maintenance; the housing association sector is also more bound by rent restrictions than in the past.”

Horizons

Touw also summarises for the other participants at the table that in terms of competition institutional investors are different to investors, who purely and simply want to maximise the return on their investment in the short term.

“In the case of the latter, it makes sense to argue that you might want to redesign as many homes as possible on a plot. But if you look beyond the narrow perspective of profitability, you may argue in favour of investing in other types of property, such as smaller houses, which will improve the quality of the overall project. Which development you might want to focus on all depends on where your horizons are.”

Van de Wetering noted: “It all depends on who a particular quality is intended for. Whether or not it is question of quality that is relevant for property developers, is a strategic choice. When determining objective quality, we comply with Inrev’s benchmark and, when determining sustainability, we adhere to GRESB’s best practices. These are all layers that you can peel off.”

Soft controls

“You are also expected to be able to identify things like that,” says Touw.  “And that in turn has consequences for the management model in your organisation. By applying all kinds of controls, this has a place in your risk management.”

Everyone at the table agrees that you should act accordingly. Van der Bijl: “If you have fifty shareholders all of different sizes, you need to constantly work on quality. This is not just about hard data, but also about the tone at the top and other soft controls.”

According to Reeuwijk, the increasing regulatory burden makes a reliable valuation of the market value even more important. “The value under the Valuation of Immovable Property Act (WOZ) may soon be less of a factor in the maximum rent, and this is compounded by the fact that, through the Housing Bye-Laws, municipalities such as The Hague are now also opting for a target-group approach towards the allocation of mid-rental housing. Your business processes also need to fit in with those kinds of developments.”

Specifically, he is thinking of investor criteria that property investors can use to decide whether to invest in ownership, to acquire new homes or to sell them off. “Whether or not an investment is profitable depends on the buyer’s need for a return on investment. But if you are going to purchase a product as an investor, you at least want to understand the product. A property valuer’s advice can help with that.”

Devices

Investments in existing property play a role for all housing investors in view of ever-increasing sustainability requirements. Wong argues in favour of smart optimisation of investments.  “Of course, there are already numerous technologies and devices available to consumers, such as smart thermostats. As soon as homeowners start to play a central role in this by incorporating these technologies, they will not only deliver an increase in the level of service to the tenant, but will also collect data that will provide new insights into the dimension of sustainability.”

 

“With low rents, investment in expensive devices is less attractive,” adds Reeuwijk.  “In addition, you also have the issue of privacy, of course. Not all tenants expect to be constantly monitored.”

Timber construction

This raises the question of whether the required investment in sustainability necessarily leads to a disinvestment in residential property. At the time of the round-table discussion, reference was also made to a recent broadcast by VPRO Tegenlicht on timber construction, as a sustainable and rapid solution to the construction crisis. The suggestion was made in the program that both developers and investors are reluctant to make sustainability a reality because their revenue models would be fully based on ‘stone’ houses with a definite lifespan.

Touw thinks that this logic is incorrect. “Properties can also be developed in this segment that are often much more sustainable than stone properties. The suggestion that investors would not wish to consider more sustainable methods of construction seems to me to be far removed.  New technologies are also being increasingly used in the Netherlands.”

“At Altera an all-timber building was also considered last year,” says Van der Bijl. “Only the developer didn’t manage to get that project completed.”

Van de Wetering: “This also applies at the other end of the spectrum, if the sustainable timber has to come from China, the question is to what extent it really is still sustainable. Investments in sustainability are really a combination of factors.  There is much more to it than just technology.”

Baby boom generation

Another issue on which the guests around the table agree that this is penetrating the market very quickly is our ageing population. “The baby boom generation is extensive and will be retiring in the next two decades,” says Van der Bijl. “At the same time, this generation has the highest percentage of homeowners, and the question is where they will want to and be able to live if the need for care increases. The current housing stock and new construction is not well geared towards this group. If you look at quality from this perspective, quality is also the life-cycle resilience of homes.”

Van de Wetering also sees the ageing population as being related to urbanisation. “People who have at some point moved to the city may decide to go back to where they came from in their old age. This is also a significant factor for the housing market in smaller communities. A city like Amsterdam is often abandoned when people start having children and cannot find suitable, affordable housing.”

Touw:  “Most of the elderly now live at large outer city ‘Vinex’ locations. Combined with the arrival of new families, this provides an excellent opportunity for an investor to improve the quality of your propositions at those locations.”

Number of households

Reeuwijk: “Current demographic trends have a dual impact. You have to deal with small households more often, because young people are living alone for a longer period of time, but also because in an aging society there will also be a growing group of elderly people who, as a result of the death of their partner, will be forced to live alone again. These trends are also making a significant contribution to the growth in the number of households and the changing need for housing. To know what quality you need, you’ll need to delve a little deeper to see what’s really going on.”

What is the life cycle of the large number of student residences being built now, while a decrease in the number of students is to be expected for the future? “The answer to this is in any case more complex than just being about looking at the footprint in square metres,” says Reeuwijk.

Van de Wetering: “An investor with shorter horizons won’t be that concerned. He/she will only be aware that it’s available today, but that by tomorrow it will already be let out.”

Future-proofing

For the time being, the discussion about future-proofing does seems to be a theoretical one in view of the enormous pressure on the housing market. Van der Bijl: “Institutional investors are trying to respond to this as effectively as possible, but the government only seems to be interested in regulation as a solution. In our opinion, that is putting the cart before the horse, because all you are achieving is for the market players to continue to produce new builds at a lower level, which does not resolve the problem.”

Touw:  “A Delta Plan for the housing market must be drawn up to which all relevant parties jointly contribute. A plan aimed at realising a sufficient number of new homes rather than one that redistributes by regulating scarcity.”

Wong: “Being able to effectively map data is one thing.  Properly analysing it is at least as important. In this way, developing the qualitative aspect of a residential portfolio is also something we can predict.”