THE HAGUE, 15/12/07 - The rising price of housing in the Netherlands since the 1970s has largely been caused by the government. Additionally, the upward price trend has scarcely led to more production of housing or better housing, says the Central Planning Bureau (CPB).

CPB studied the price sensitivity of Dutch housing supply for the period from 1970 to 2005. In the Netherlands, a price rise of 10 percent in a single year leads to an increase of just 0.4 percent in the production of new housing for sale. In the US, the same price rise leads to an increase in newbuilding of about 40 percent, a 100 times greater effect.

Nor does a price rise in the Netherlands lead to higher quality of existing and new housing. "The cause of this must partially be sought in the many forms of government intervention in housing and land markets," concludes the CPB discussion paper 'Housing supply in the Netherlands'.

The supply of land for housing construction in the Netherlands is not decided by market players, but by the government. To protect scarce open space, the government restricts the supply at many attractive locations, such as around the major cities.

Dutch government policy also imposes restrictions on rent charged, making newbuilding of rental housing less attractive to market players. The rental sector is "implicitly subsidised by municipalities, who finance this from the total profits of converting agricultural land into home-building land. Thus, the private sector indirectly finances the costs of social housing, which in turn has an obstructive effect on construction of housing for sale."

Demand for housing has grown rapidly in recent decades due to increasing purchasing power, declining mortgage interest rates, demographic trends, easier credit and various subsidies for housing (rental subsidies and mortgage interest deductibility). "This increase need not have led to a substantial rise in housing prices", concludes the CPB.