The Startersloan: a leg-up onto the Dutch housing market for first-time buyers?: A study on the effectiveness of targeted incentive policy

The purchase of a first home is considered a milestone in people’s lives as home ownership does not only provide wealth accumulation and security in old age, it is also ‘a key element of a ‘successful’ lifestyle package’ (Helderman, 2007; McKee, 2012). However, the purchase of a first home has become a difficult affair in many European countries, as outsiders on the housing market struggle to find a home within their price range (Voigtländer. 2019, p. 54). According to McKee (2012, p. 855) the insider and outsider conflict or inter-generational conflict on the housing market demands government interference as ‘to avoid the creation of a lost generation’ of young adults that are forced to postpone or cancel the purchase of their first home. The Startersloan or ‘Starterslening’ is a local policy that aims to repair a part of this major problem by providing first-time buyers with an extra loan on top of their mortgage to buy their desired house (SVn. 2018, 21 November). In 2002 the...Show moreThe purchase of a first home is considered a milestone in people’s lives as home ownership does not only provide wealth accumulation and security in old age, it is also ‘a key element of a ‘successful’ lifestyle package’ (Helderman, 2007; McKee, 2012). However, the purchase of a first home has become a difficult affair in many European countries, as outsiders on the housing market struggle to find a home within their price range (Voigtländer. 2019, p. 54). According to McKee (2012, p. 855) the insider and outsider conflict or inter-generational conflict on the housing market demands government interference as ‘to avoid the creation of a lost generation’ of young adults that are forced to postpone or cancel the purchase of their first home. The Startersloan or ‘Starterslening’ is a local policy that aims to repair a part of this major problem by providing first-time buyers with an extra loan on top of their mortgage to buy their desired house (SVn. 2018, 21 November). In 2002 the Startersloan was introduced by SVn or ‘Stimuleringsfonds Volkshuisvesting Nederlandse gemeenten’, a non-profit organisation that finances the loans with contributions from participating municipalities, provincial governments and housing associations (Elsinga, Hoekstra & Dol, 2014). The goal of this research is to establish whether the Startersloan is effective in achieving its main aim, to increase home ownership rates among first-time buyers. Based on existing literature on both the effectiveness of generic and targeted incentive policy, the expectation is that the Startersloan is effective in increasing the accessibility into homeownership among first-time buyers (Atterhög, 2006; Chen & Enström-Öst, 2005; Verwoerd, Schep and Mulder, 2014; Bloxham, McGregor and Rankin, 2010). The main question of this research is: Is the Startersloan effective in increasing accessibility into homeownership for first-time buyers, compared to a situation without the Startersloan? This research question will be answered by measuring the effect of the Startersloan on the level of relocated first-time buyers for 355 municipalities over the period of 2010 to 2020. The Startersloan is a local policy that is not offered to first-time buyers in all municipalities and the level of municipalities that offer the loan changes over time (SVn. 2018, 21 November). By making use of this temporal and spatial variation in the Startersloan the ‘what if’ question can be answered (Verwoerd et al., 2014) as naturally a treatment group, municipalities that offer the Startersloan, and control group, municipalities that do not, are created over time. This makes it possible to compare the levels of relocated first-time buyers of these two groups to answer the question what would have been the level of relocated starters if it had not been for the Startersloan or treatment effect. The independent variable is a dummy variable that captures the presence (1) or absence (0) of the Startersloan for each municipality for each year. Data from Statistics Netherlands is used for the dependent variable relocations that captures the level of relocated people in the age group of 20 to 40 years (CBS. 2021, 3 September). This age group is selected because the Startersloan is a local and specifically targeted policy that is only responsible for a small share of total home purchases (SVn, 2020). The data will be analysed by using a Fixed Effects (FE) Model with a Least-Squares Dummy Variables (LSDV) model as a benchmark. While the different types and the effectiveness of generic policies that aim to increase homeownership are more widely researched (Whitehead & Scanlon, 2002), this not the case for targeted incentive policy at first-time buyers. Atterhög (2006) and Chen and Enström-Öst (2005) found that generic incentive policies are effective in increasing homeownership rates. Verwoerd et al. (2014) and Mulder et al. (2014) researched the effect of the Startersloan, but only for the years 2013 and 2014 and Mulder et al. (2014) only researched the region of Amersfoort. It is mainly the lack of a time dimension in these studies that weakens the results that do show that the Startersloan is effective in increasing first-home purchases. Empirically measuring the effect of public policy is difficult as it is often not possible to capture policy at all (Atterhög, 2006, p. 20) or because there is not enough variation in this policy over time and location to really isolate its effect (Dungey et al., 2011). Furthermore, Flatau (2003, p. 1) argues that the long-term effect of incentive policies that aim to increase homeownership is unclear. The main contribution of this research is that it captures the effect of policy on real-life data, by making use of the variation in this policy over time and location, for a longer time period and for the entire country. Furthermore, this research not only provides useful insights into the effectiveness of a widely used but under-researched Dutch policy but also into the effectiveness of (targeted) incentive policies on the housing market in general. To conclude, this research also addresses the much broader question whether government interference on the housing market is not only effective on paper but also in real-life, which is highly relevant for research in the field of Public Administration. McKee (2012, p. 857) and Voigtländer (2019, p. p. 54) argue that the exclusion of young adults on the housing market has become an international phenomenon in the last decade. A survey in the Netherlands among 6.300 prospective first-time buyers in 2021, initiated by SVn among others, illustrates the difficult position of first-time buyers. In this survey, 78% of the respondents considers the housing market unfavourable, 89% thinks that buying a house in not a good idea at the moment and of the respondents that live with their parents 92% indicate that this is out of pure necessity (Startenopdewoningmarkt.nl, 2021). The societal relevance of this research is that it is important for policymakers, municipalities and most of all first-time buyers, to establish whether the Startersloan is actually effective in aiding first-time buyers. Furthermore, there might be drawbacks to the Startersloan policy. The Startersloan, like similar policies, might increase housing prices through increased demand (Lee & Reed, 2014). Although empirical evidence on this relationship is scarce (Lee & Reed, 2014; Verwoerd et al., 2014) , the view that the Startersloan might increase housing prices is shared by some local councillors and estate agents who therefore advice against this policy (Van Kooten. 2021, 8 August). Another drawback is that the Startersloan is not risk free, for both recipients and municipalities. Opponents of the Startersloan argue that this policy encourages young people to pile debt on debt (Bekkers. 2014, 8 August), which can lead to financial problems (Vogels. 2021, 11 October). A risk of the Startersloan for municipalities is that it is unclear whether municipalities get repaid after compulsory sale as it concerns a second mortgage (Bekkers. 2014, 8 August; Mulder et al. 2014, p. 25). Overall, the Startersloan is the most costly product SVn provides with a total value at the end of 2020 of 621 million (SVn, 2020). Because of the possible drawbacks of the Startersloan it is important from a societal perspective to establish its effectiveness. Furthermore, this research is also relevant in light of the increasing popularity of the Startersloan as a policy instrument to make homeownership possible for young adults (SVn, 2020). The results partly confirm the prediction of the effect of the Startersloan. The Startersloan has a positive significant effect on the level of relocated first-time buyers that relocate within their own municipality, but not on the level of relocated first-time buyers that have settled in a municipality from elsewhere.Show less

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The Startersloan: a leg-up onto the Dutch housing market for first-time buyers? A study on the effectiveness of targeted incentive policy