There is a close relationship between satisfaction with dwellings and the environment and the opportunities people have in the housing market. Satisfaction is also related to the price/quality ratio of the dwelling available to them. This paper focuses on this satisfaction and on the opportunities housing consumers have, by using a rational institutional approach. The paper also considers the tensions that exist in the Dutch housing market and the part housing services can play in reducing these tensions. The paper ends with some conclusions and suggestions for further research.
The Dutch housing consumer is satisfied with his dwelling, the environment he lives in and the housing services he uses in his dwelling and the environment. But it is not given that this satisfaction will stay at the same level in the future. Society changes rapidly and people become less satisfied with society as a whole. On the other hand, they are still satisfied with their own life.
The government tries to influence the satisfaction of people’s own life by improving the quality of dwellings, the environment people live in and the housing services they need. These improvements take a lot of time and means and in many cases the results aren’t visible right away, but will be visible in the future.
There are many institutional obstacles in the Dutch housing market. We need to take a closer look in order to understand and remove them. One of the obstacles is a shortage in the housing market, both quantitative and qualitative. A broad range of factors causes this shortage, and the government is not able to solve this problem. They have got limited means at their disposal. This means there isn’t one solution, but it will take efforts by all the parties involved to solve the problems.
When we look for instance at social housing we can see that housing corporations, which were closely related to the government, took care of social housing. To guarantee the quality of the housing stock some minimum quality requirements were laid down. The last fifteen years, these housing corporations received greater freedom to develop their own policy and became more independent from the government.
The government leaves more developments to commercial parties. This was a major policy change, which doesn’t only occur in relation to housing policy, but is a result of changes in society as a whole and a policy change that is made in general.
The change of policy leaves more and more space to commercial housing services, for instance in the field of health care or services focused on young families. The demand for these kind of services is increasing. More housing services are offered and these housing services are related to a broad range of needs.
The role of housing services increases.
This is increasingly important in a properly functioning market. All kinds of housing services are offered, but in view of the current deregulation and liberalization, much more will be possible in the future.
In specific areas of policy, such as healthcare, many innovations are made. In the future these services can play a more important role in the choices people make in the housing market.
But first of all has to be dealt with the problems at the Dutch housing market.
Extra housing stock, combined with the liberalization of the policy on rents, could
Dwellings and the Dutch: a Dynamic Duo? Summary
persuade people to move up the housingladder. In a more competitive housing market, there are more opportunities for private suppliers to provide housing services. High-quality housing services could become an important means by which landlords could stand out in the housing market. There is less need for this in the current housing market.
Because of the changes the society and the housing market is undergoing a lot of implications aren’t clear at this moment.
That is why a lot of research on these changes will have to be done in the near future. The institutional context is a useful tool of analysis for this kind of research.
Dwellings and the Dutch: a Dynamic Duo?
Summary
There is a close relationship between satisfaction with dwellings and the environment and the opportunities people have in the housing market. Satisfaction is also related to the price/quality ratio of the dwelling available to them. This paper focuses on this satisfaction and on the opportunities housing consumers have, by using a rational institutional approach.
The paper also considers the tensions that exist in the Dutch housing market and the part housing services can play in reducing these tensions. The paper ends with some conclusions and suggestions for further research.
Introduction
This paper focuses on the satisfaction of housing consumers with their dwelling, the environment they live in and the role of housing services play in this satisfaction.
Satisfaction is one of the key issues of economic science, as it focuses on the extent to which economic, rationally acting actors try to satisfy their needs in the best possible way. The concept of ’satisfaction’
forms part of the wider term of fulfillment.
The paper aims to explore these issues and discusses the following topics. First, the paper discusses in the economic background of the behavior of people in relation to their living situation. We choose an institutional economic background to describe this behavior. Next, we will give a short overview of the history of Dutch housing policy, as far as this policy is relevant for the current situation in the Dutch housing market. This will be followed by a global description of the Dutch housing market, using some indicators that give a good insight into this market. We will go on to provide some insight into elements relating to satisfaction with the environment people live in, using the institutional economic framework. Finally we will focus on some typical issues of current interest which are relevant to the Dutch housing market: the housing shortage and the conversion of office buildings into dwellings and the part housing services can play in these issues.
In this paper, ’housing services’ are defined as all the services people use in
their dwelling and the environment they live in. The paper will conclude with some conclusions and suggestions for further research.
Theoretical background
In economic science the neo-classical economic model is considered to be the basic economic model. In a market where parties can enter and leave freely, actors try to trade goods and services in order to generate as high a revenue as possible. In this ideal system the free market system operates perfectly. Everybody has the same information and opportunities to make the same consideration. These considerations are made on a perfectly rational basis.
Considerations that are influenced by emotion do not exist in the neo-classical economic model. The main characteristics can be summarized as follows: actors make decisions in interaction with each other and demanders and suppliers do not know each other: the market is anonymous and demanders are competitors. Suppliers also compete with each other (Segeren, Needham & Groen, 2005).
Hazeu (2000) describes the fundamental criticism of the neo-classical system as follows: the basic model of the neo-classical economy does not consider the multiform targets and the internal functioning of organizations, institutions, incomplete contracts, transaction costs, including search costs, which are encouraged by the heterogeneity of goods.
Dwellings and the Dutch: a Dynamic Duo?
Goods are of course seldom homogeneous in real life. Variation in quality exists and this variation in quality is not immediate and wholly visible. These are precisely the elements that determine the satisfaction of people with housing services and the environment they live in.
Research on institutions can be performed in different ways. Hazeu (2000) describes institutions as limitations designed by people that structure economic, social and political behavior. He states that institutions can be formal and informal.
This description is in line with the description Scharpf (1997) gives. He states that institutions can be seen as systems of rules that structure the directions of action a group of actors could choose.
The way actors put this into effect can be studied in different ways. This is an important theme, because the point of view strongly influences the way the research project is structured and the outcomes that may ultimately be expected.
Hall and Taylor (1996) distinguish three different angles of approach. These are historical institutionalism, rational choice institutionalism and sociological institutionalism. The different angles of approach all take the institutional environment as their starting point. The main difference between the three angles of approach can be found in the way the institutional environment is assumed to influence the behavior of actors.
Hall and Taylor describe the rational institutionalism as follows. They make the assumption that actors have a certain number of preferences and behave wholly instrumentally to maximize the satisfying of their demands. They do this in such a way that extensive calculation can be presupposed. The core of the rational institutional approach can be found in this
calculation. The institutional environment determines the preferences of the actors.
The elements that are part of this environment are weighed up against each other by the different actors, as are the interactions that arise from this. In rational institutionalism, institutional rules are seen as external constraints and incentives that structure purposeful actions made by rational actors with self-interest (Scharpf, 2000). In this paper we presuppose that housing consumers base the interpretation of the environment they live in and the housing services they need on rational choices that are the outcome of the institutional environment they are part of.
Williamson (1998) distinguishes a formal and an informal institutional environment.
This division can also be distinguished within the rational institutionalism of Hall and Taylor. An important limitation is that these institutions only exist within the specific actor environment. Within their strategic selectivity, it can be argued that institutions select behavior (Jessop, 2001).
The different possible institutions can be divided in this way within this classification and restriction. Interaction, bounded rationality and clarification of preferences are seen as the means for an enlightened ’institutional entrepreneur’, whose subjectivity and identity and, accordingly, own preferences are beyond all doubt. Coleman (1997) has given a detailed description of these institutions.
He distinguishes the elements of rights, authority, trust and norms as the elements that form the social system. The four different institutions as distinguished by Coleman will dealt with in brief below.
The elements Coleman distinguishes are both formal and informal institutions and can be used to explain the institutional environment people live within. Insight in the institutional environment gives insight
Dwellings and the Dutch: a Dynamic Duo?
in the satisfaction of people with their dwelling and the environment they live in and the use of housing services. In the next sections we’ll place the satisfaction and use of housing services in the institutional context.
The first institution refers to the rights different actors possess. According to Coleman, rights are based on consensus in weighing up power. These rights can be formal rights, laid down in the law and regulations, but also unwritten and generally accepted informal rights.
The second element is authority. Coleman says on this that authority develops because the right to control actions is given to the actor who has the greatest interest in controlling the actions. This control is performed in such a way that the interests are satisfied.
Apart from the fact that relationships of authority provide many opportunities for parties, they also have their restrictions:
within the kind of activities over which authority can be exercised, in time, the physical location and the imposition of authority.
The system can only exist when a sufficient level of trust exists between the different parties. The placing of trust makes it possible to get a process going that would have been impossible without trust. Trust can be placed in a broad spectrum of actors, but also in only one or a few actors. Trust can be seen as a binding force between actors. They recognize the authority of various actors and can transfer rights, in the confidence that the actor that receives the rights will not betray the confidence. Trust is not only a binding force, but also an essential element in the institutional context. Moreover, trust cannot be placed on the same level as the other elements. Trust is also a condition for
the other institutions to exist. The other institutions derive their legitimacy from the existence of trust.
The fourth and final element Coleman distinguishes is the element ’norms’. This element is the result of complex patterns of behavior of large groups of people over a well-defined period of time. Certain types of norms can be a solution to problems that originate from inadequate interaction (Ullmann-Margalit, 1977). Norms can be seen as solutions to certain behavioral problems. Coleman states that because norms are the result of complex patterns of behavior, these norms can also be imposed when they are the collective wish of actors with greater power.
Ullmann-Margalit states that two types of norms can be distinguished: firstly, accepted and well-established solutions to problems of coordination that repeatedly occurred in the past and which after a while determine the status of norms, and secondly, solutions for new recurring problems of coordination that are stated right from the start as norms. Norms therefore make a major contribution to the functioning of social systems.
Dutch housing policy
Dutch housing policy in fact began with the Housing Act of 1901. As a response to rapid population growth and the fast but poor-quality growth of the housing stock in the second half of nineteenth century, the government decided to impose certain requirements on the quality and the kind of housing that would be built. To guarantee the quality of the housing stock some minimum quality requirements were laid down. It became possible to start up housing corporations which took care of social housing. The Housing Act produced a rise in quantity and quality of the housing stock. The government created an entirely
Dwellings and the Dutch: a Dynamic Duo?
new institutional context with rights and authority and laid down its norms for the housing market through the housing corporations. The housing corporations were trusted by the government and became the most important tool the government could use to manage social housing during the twentieth century. This is an important difference with some other European countries, where the government was itself responsible for social housing (see for instance Oxley & Smith, 1996).
Because housing corporations were not entirely private institutions, the government kept total control of the social housing market, despite the fact that the housing corporations had a certain degree of independence.
As a result of the housing corporations’
extensive influence and tight control by the government, for a long time and especially during the first decades after World War II, few opportunities existed for private initiative and for the realization of owner-occupied dwellings. Only after 1975 did private housing construction production (temporally) rise above 60 per cent of the total amount of new-build housing in the Netherlands. During the thirty years that followed, this percentage increased slowly to 80 per cent (Van der Geest, Schuurman, Traudes & Van der Wal, 2003). The next section will explain how the strong emphasis on housing construction by housing corporations created a situation where half of the entire stock consists of rented houses.
A number of major changes that have taken place during the past fifteen years are extremely important when examining current housing policy. In the period from 1993 to 1995 the housing corporations were privatized following the Policy Document on Housing. The Subsidized Rented Sector (Management) Decree (Besluit Beheer Sociale Huursector,
abbreviated to BBSH) entered into force on 1993, laying down the tasks and position of the housing corporations. The housing corporations received greater freedom to develop their own policy and became more independent from the government. In 1995 the financial ties between the government and the housing corporations became weaker too, as a result of the so-called ’Bruteringsoperatie’.
In this operation the rights of the housing corporations to receive operating subsidies from the government were written off against the standing loans from the government to the housing corporations (Van der Geest, Schuurman, Traudes &
Van der Wal, 2003). These two fundamental policy changes made the ties between the government and the housing corporations, and therefore on the housing market, much weaker. This meant that corporations had more freedom to decide for themselves how to deal with their property. They may sell some of their property or undertake commercial activities. In short, they were given more freedom to act as entrepreneurs.
The ‘Policy Document on Housing in the 21st century’ (Nota Wonen in de 21ste
eeuw) continued this policy. The starting
points of this policy document were more individual freedom of choice, attention to generally accepted values and a compassionate government in a controlled market environment (Ministry of Housing, Spatial Planning and the Environment, 2000). In practice this meant an increasingly ‘hands-off’ government, the aim of which was to increase the scope on the housing market for market forces and the wishes of consumers. This would lead to a rise in the quality of the environment people live in, and with it the satisfaction levels of residents.This policy that was laid down in the Policy Document on Housing has been
Dwellings and the Dutch: a Dynamic Duo?
continued in the new Spatial Planning Memorandum (Nota Ruimte), which sets out spatial planning policy for the coming years. The policy document was laid down in 2004. At the core of this strategy is the idea that the traditional, controlling role of central government in spatial planning policy will be reduced. More initiative will be left to local government, but certainly to private parties too (Ministry of Housing, Spatial Planning and the Environment, 2004). This change of policy has also major implications for housing production.
The central government does not decide where large locations for housing production have to be created as it did in the past, but leaves this as much as possible to other parties.
These policy changes of recent years have resulted in major changes in the Dutch housing market, as the various parties are still clearly in search of their new role.
Nevertheless, the government would like to be able to influence the housing market more than seems to be possible at present.
The Dutch housing market is still suffering from major problems. House prices are high, the building of new houses is at an all-time low and there has been no significant improvement in the quality of the housing stock. Furthermore, an issue which is increasingly being seen as a problem is that large groups of housing consumers with a relatively high income live in social housing and that part of the housing costs of the majority of homeowners is paid by the government.
This is because homeowners are able to deduct their mortgage interest payments from their taxable income. This issue will be discussed later in this paper.
On the other hand, it cannot really be said that the policy was a failure. A change like this is a process that takes a long time. The new relationships between housing corporations and private parties, for
instance, where housing corporations increasingly operate in the market that used to be the domain of the private parties, generate tensions, but are not entirely clear in all areas. It can be said, though, in view of the problems the Dutch housing market is facing, that much will happen in the coming years in this market. It is not inconceivable that Dutch society will have to cope with major changes in this area.
Apart from these policy changes in relation to the organization of the sector, it is important to consider the quantitative and qualitative incentives the government has tried to give. As already mentioned, government policy used to focus on the expansion of the housing stock. This resulted in large housing locations in key areas around and on the edge of the large cities. In the 1980s and 1990s the qualitative improvement of the existing housing stock became an additional area of attention, first under the banner of ’urban renewal’ and later as ’restructuring’.
During the urban renewal the inner cities were improved, the restructuring focused on the housing stock built immediately after World War II. Through demolition and new housing development, but also by combining dwellings and generally upgrading a large number of dwellings to meet today’s quality requirements, the government tried to enhance the quality of specific segments of the housing market, working together with the housing corporations and private homeowners.
To summarize, Dutch housing policy can be described as a traditionally strongly government-controlled market, which is being forced to adopt more free market practices in a very short time. At the same time, major physical changes are occurring in this housing market. Housing policy is therefore changing very fast, whereas this cannot be said of the housing market as a whole. The problems that this will generate