What Can We Learn From the Dutch Social Housing System?

Social housing makes up 29 percent of the total housing stock in the Netherlands. These social units, which in 2022 rented for an average of €561 per month (or about $600), are noteworthy because of the decentralized network of 284 independent, nonprofit housing associations (called woningcorporaties) that build, maintain, and operate the country’s social housing. 

Surprisingly, the Dutch housing associations—whose portfolios range from 400 to over 80,000 units—do not receive any direct subsidy from the government to fund their activities. Instead, their operations are sustained by revolving funds of rental income. New social housing construction is funded with the housing association’s excess rental revenue, long-term loans, and equity from unit sales. These features of the Dutch social housing system—that it is a decentralized system of nonprofit organizations independent from the state; that they own almost one-third of the country’s housing and keep it off of the market; and that the system requires no direct state subsidy—make this system a fascinating case study for policymakers around the world looking for new models to address affordable housing crises. 

This paper is the second part of a study on the Dutch social housing system. The first paper traced the history of the system. Housing associations date back to the mid-nineteenth century; they have proven resilient through two postwar housing crises, economic depressions, and neoliberal budget cuts, adapting to the needs and resources of each of these eras. Today, the system is adapting again, as housing associations are mobilized to combat the housing shortage and the climate crisis. In short, that paper explained that the modern social housing system’s self-sufficiency is built on the public investments made in its past iterations.

This second part of the study will take a look under the hood and detail the mechanics of the system today, from institutional structure, to governance relationships, to financing mechanisms. By walking through each of the institutions and policies involved in the system’s elegant network of checks and balances, this paper shows how the gears turn together. The unique funding mechanisms and the techniques of governance in the Dutch social housing system establish a financially stable social housing sector that fosters innovation in housing production and sustainability. Informed by printed materials, most of them in Dutch, as well as over twenty interviews with professionals in and around the social housing sector, this study captures a complex and dynamic system that is under-documented in English. My hope is that this study will render the Dutch model visible, so that its innovations can be shared with a broad and international audience.  

This paper begins with the institutional structure of a housing association. A housing association is a nonprofit foundation that provides affordable housing to people with low incomes. Housing associations are part of the social sector; they are social enterprises that fill in where the market does not meet a societal need. Positioned in between the public and private sectors, housing associations use a business framework to deliver social services, with special privileges and regulations related to those services. Each of the 284 housing associations in the Netherlands is unique in size and operations, with portfolios ranging from less than 400 units to more than 80,000. Housing associations’ business is threefold: they are landlords, developers, and asset managers. As landlords, they operate social rental units, taking care of tenant needs, maintenance, and neighborhood quality. As developers, they develop new social housing projects funded by excess rental revenue, unit sales, and long-term, low-interest loans. As asset managers, they steward their large real estate portfolios, identifying opportunities and needs that strike a balance between social impact and financial sustainability.  

A housing association’s core social duty is to provide affordable housing to people with low incomes. This duty is further defined in four dimensions: affordability, availability, quality, and management. They have a duty to protect affordability, keeping rents at levels that are affordable to their tenants. The national government is also partially responsible for affordability, as they set the maximum rent for social housing—€763.47 in 2022—limit annual rent increases, and provide rental assistance subsidies. Most units owned by housing associations have rents far below the maximum; the average social rent was €561 in 2021. Renters of social housing contributed an average of 33.8 percent of their income to rent. Once rents are set, the next dimension of housing associations’ social duty is availability.

One part of availability is fairly allocating social housing units. Tenants apply for units of interest through a third-party allocation platform. The platform is designed to allocate units from all housing associations in the region transparently based on tenant qualifications. The other part of availability is ensuring there are enough social units to meet demand. Rotterdam has seen the demand for social housing increase by 50 percent in five years, which is reflected in growing wait lists.

In response, housing associations are building new housing as quickly as they can, committing to building 250,000 new social units by 2030. The next dimension of housing associations’ social duty is quality. Housing associations operate under the assumption that they will own their buildings in perpetuity, so their financial and social interests are aligned when they invest in ongoing maintenance and high-quality construction.

Housing associations have also been given a leading role in the country’s transition to a carbon-neutral housing stock by 2050. They are retrofitting their existing units to improve energy performance, and new construction is built to high energy standards. Finally, housing associations have a duty to provide their tenants with attentive property management. They negotiate with tenants’ unions, connect tenants to other social services, and plan for the extra needs of vulnerable groups such as the elderly, people with disabilities, and people with refugee status.

Attentive property management also goes beyond the properties themselves. Housing associations invest in the physical quality and social infrastructures of their neighborhoods to prevent concentrations of social housing from equating with concentrations of poverty. 

Housing associations are part of the social sector, not the public sector. Therefore, the government does not dictate their operations directly. In the governance section, this paper lays out the softer system of relationships and steering mechanisms that the government uses to keep housing associations aligned with its agenda. In this configuration, the government is able to influence housing production without having to manage it directly.  

Some of the government’s steering mechanisms fall under planning: these policy instruments envision the city’s future and create the frameworks within which development will occur. The municipal government makes a Zoning Plan, which can zone parcels specifically for social housing or increase the allowable density on parcels owned by housing associations. The municipal government also issues building permits, which it can use as leverage to negotiate for public benefit in private-sector developments. When housing associations propose new developments, the negotiations start much earlier. Housing associations are required to make biannual Performance Agreements with the municipal government and the national renters’ association to coordinate the housing association’s objectives. While these agreements do not have legal enforcement mechanisms, the mutual dependence and trust between a housing association and its municipal government creates a situation in which parties that ultimately have the same goal work together to figure out what is feasible. 

The government also steers housing associations with regulations: these policy instruments set a quality minimum and offer tenant protections. In terms of tenant protections, the national government sets the maximum social rent and annual rent increase, protects tenants’ rights against displacement, and regulates how social housing is allocated and to whom. Quality is regulated with the building code, the quality-based rent control system, and the aesthetics committee. Between its planning and regulatory instruments, the government is able to influence the work of housing associations to align their activities with the public vision for the future. 

Finally, one may be left wondering how housing associations are able to perform their wide ranging social duties without direct financial support from the government. The financing section lays out the financial mechanisms that underpin the system. First, housing associations operate on a revolving fund, using rental income to cover the costs of maintenance, overhead, debt service, and taxes. Sector-wide, in 2021 housing associations generated €17.7 billion in income, primarily from rents, and spent €14.8 billion on maintenance (€4.5 billion), overhead (€4.9 billion), interest payments (€2.6 billion), and taxes (€2.8 billion). This left €2.9 billion in rental revenue, which the nonprofits had to reinvest in the social housing stock.  

Equity from rental revenue is the first of three sources of funding for new social housing development. Another source of equity is strategic unit sales, which allow housing associations to capitalize the rising market value of their properties. While this must be done carefully to avoid undermining their social goals, selling social housing units can create entry-level homeownership opportunities, and in 2021, 4,400 of 5,600 units sold went to existing tenants. In that same year, there was a net increase of 2,000 social housing units, because the sale revenue was reinvested in new developments.  

In addition to rent and sale revenue, social housing development is financed with long-term low interest loans. While in the past housing associations borrowed directly from the government, today they take out loans on the private capital markets with a guarantee. The Guarantee Fund for Social Housing has a triple-layered guarantee that is ultimately carried by the government, which would issue interest-free loans. This lender of last resort function, which has never been used, grants the Guarantee Fund an AAA credit rating. In 2022, the average interest rate on new guaranteed loans was 1.46 percent, and all outstanding loans averaged a 2.84 percent interest rate. Of those new loans, 47 percent had 40- to 50-year terms. With the Fund’s guarantee, housing associations effectively have an open line of credit that is based on the value of their portfolio, making access to debt easy and reliable. The Guarantee Fund is the first of three indirect subsidies that make social housing development feasible. 

The second indirect subsidy is a land discount. Land zoned for social housing is “worth” less because less profit can be extracted from it. The decline in potential revenue from the land puts downward pressure on its market value, giving those willing to build housing at social rates (usually housing associations) a discount on the purchase price. Additionally, for publicly-owned land municipalities can discount their standard per-square-meter sale or lease rates. In 2021, the average land price per square meter for new social housing developments was €314. The discounted land prices help explain how the average per-unit cost for social housing construction that year was only €182,099.  

Finally, rental assistance is available to tenants whose income is insufficient to pay their rent. All tenants with rents below the social maximum can request rental assistance from the tax authority. While rental assistance is not exclusive to housing associations’ tenants (privately-owned units can also rent below the social maximum), it does help housing associations fill the gap between affordability and operating costs. The amount of assistance is calculated based on household composition, income, and rent. The government pays €3.6 billion per year in rental assistance, going to 1.4 million households, meaning the average qualifying household receives €208 per month in rental assistance.  

Having covered the various funding streams for housing associations—rental revenue (which includes tenants’ rental assistance), equity from unit sales, and guaranteed loans—the remaining question is how housing associations decide what to build when and where. Because their social duty is not just to build affordable housing in the present, but also to preserve its affordability into the future, housing associations must balance their social and financial goals when evaluating new development projects. To do so, housing associations make use of teams thinking at different scales: the scale of the association, the portfolio, and the project.

At the scale of the association, an investment framework is created to set minimum returns for projects of various characteristics. Because investment decisions are made in-house, the investment framework can be arranged to cross-subsidize the portfolio, allowing social returns to outweigh financial ones where important. At the scale of the portfolio, teams identify opportunities (e.g., a government plan for a new neighborhood, a zoning change) and needs (e.g., buildings with failing foundations, neighborhoods with social tension). They identify potential projects and work out various development scenarios for a site. Based on these scenario tests, a development scheme is selected, typically the one that delivers the most social impact while remaining financially viable. Then, at the scale of the project, teams tweak the details of the proposal until the expected returns align with the minimums in the investment framework. Finally, the project goes to the executive board for approval.  

With the freedom to judge performance by internal metrics, housing associations enjoy the flexibility to leverage portfolio-based financing to subsidize the projects that are socially important. Because of the Guarantee Fund, they can borrow annually in lump sums and distribute the funds internally. This means that instead of having a lender judge a new development proposal based on its projected cash flow, housing associations can make decisions internally about how new projects will affect their portfolio’s stability in the long term.  

Between the institutional structure, governance, and financing sections, this paper takes a self-sufficient affordable housing system with capacity and agency and shows how its gears turn together. History has demonstrated both the feasibility and the long-term benefits of the Dutch social housing model. It is not without faults, but the system has proven to be capable, resilient, and adaptable to changing times. While the Dutch social housing system could not simply be transferred to other contexts, I do believe that it can shape and inspire novel approaches to the pressing problem of housing affordability.

Read the full report online, here