The role of housing associations in expanding the mid-market rental segment

Various tools have been provided to housing associations in the past year to help meet this goal. But are these measures sufficient?

Services of general economic interest (DAEB)

Under the Housing Act of 2015, housing associations must distinguish between services of general economic interest (DAEB) and commercial activities (non-DAEB). DAEB tasks pertain to the core functions of a housing association, such as providing housing for individuals who, due to their income or other circumstances, cannot secure suitable accommodation independently.

This distinction is crucial because housing associations can access the Social Housing Guarantee Fund (WSW) when performing DAEB tasks, which qualify as state aid.

Mid-market rentals

As of July 1, 2024, the Affordable Rent Act introduces a new segment: mid-market rentals, in addition to social housing and the private sector. Both social housing and mid-market rentals fall under the Dutch Points System for Housing Valuation.

• Social housing: Maximum of 143 points, corresponding to a rental price of up to €879.66.
• Mid-market rentals: Maximum of 186 points, corresponding to a rental price of up to €1,157.95.
• Private sector rentals: 187 points or more, with rent freely determined by landlords.

Unlike social housing, mid-market rentals are not classified as DAEB activities. Including mid-market rentals under DAEB would not comply with the 2012 DAEB Exemption Decision or the European Commission’s 2009 decision, making it legally impossible. Consequently, housing associations cannot obtain financing for these activities.

Abolishing the market test

To support housing associations, the mandatory market test was permanently abolished as of January 1, 2024. Previously, under Article 44c of the Housing Act, housing associations needed approval from the Authority for Housing Associations before investing in non-DAEB activities. The test determined whether other commercial entities were interested in undertaking the activities. If not, the association could proceed with the investment, ensuring non-DAEB activities did not distort the market.

With the market test abolished, it should now be easier for housing associations to construct mid-market rentals.

Is this enough?

An evaluation at the end of 2023 of the earlier suspension of the market test revealed that its suspension had only a limited measurable impact on the construction of mid-market rentals by housing associations. However, the report concluded there appeared to be a “cautiously positive effect” on investments.

The Dutch housing association federation, Aedes, has expressed concerns that abolishing the market test alone is insufficient to achieve the goal of 50,000 mid-market rentals. Financial feasibility is a significant challenge, as housing associations struggle to secure loans for non-DAEB activities. Rising construction costs, inflation, and interest rates exacerbate the issue.

The Dutch Parliament acknowledges these challenges. Following efforts by several ministers, the European Commission is now exploring whether state aid rules can be relaxed to allow housing associations to access WSW funding for mid-market rentals, similar to social housing. Additionally, options such as a mid-market rental fund and project subsidies are being considered. Meanwhile, Aedes has published a guide to non-DAEB financing to assist housing associations.

Conclusion

Mid-market rentals, a new segment under the Affordable Rent Act, do not qualify as DAEB activities under European regulations. This makes it challenging for housing associations to secure financing, jeopardizing the construction of 50,000 mid-market rentals. The coming months will reveal whether the European Commission will ease its rules.

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