Medium-sized municipalities in particular are confronted with market concentrations when commissioning new development
In several medium-sized municipalities, developers and builders of new development have significant market shares as a result of landownership. They consequently can have a big say in the development of new residential areas. This is less so the case in large municipalities. This is one of the conclusions of the study “Concentrations in the residential development market” (in Dutch: “Concentraties in de nieuwbouwmarkt”), conducted by professors Edwin Buitelaar and Erwin van der Krabben in collaboration with the Netherlands’ Cadastre, Land Registry and Mapping Agency (in Dutch: Kadaster), and commissioned by the Netherlands Authority for Consumers and Markets (ACM).
Risks of high market concentrations
High market concentrations may be an indication of local market power. Several real estate developers or builders wield influence over development plans for new housing because they own land (building land or otherwise) in a town or city. That influence can be leveraged in negotiations with the municipalities. If real estate developers and builders have the upper hand (or if concentration leads to market power), there may be a risk of high prices, unwanted slowdowns in the pace of construction, or reduced quality in an already tight housing market. This scenario is most likely in medium-sized municipalities in particular. Another scenario is that municipalities find it more efficient to do business with a limited number of companies. In that case, the risk of market concentration is smaller.
Ministry to explore opportunities for getting the housing market going again
Residential development is dependent on many factors and market participants: rules and regulations, landownership, building costs, planning, risks, and the attitudes of municipalities and other parties involved. High concentrations can therefore not be assessed in isolation. This study is about the degree of concentration among real estate developers and builders with regard to residential sites. Market power and possible abuse thereof are not part of this study. Considering the risks of concentrations, municipalities may contact ACM if they have concrete indications of market power. The Dutch Ministry of the Interior and Kingdom Relations (BZK) has already commissioned a study to explore what opportunities the current rules and regulations offer for allowing the residential development market to function better. ACM will continue to keep a close watch on this part of the housing market, where necessary.
Market for municipal land and residential development are not transparent
The researchers had to spend a lot of time on collecting and analyzing data. The market for municipal land and residential development turns out not to be transparent. For example, it was difficult to determine from the data of Kadaster what construction company was involved when a municipality sold a new development property (or the ground thereof). Such a situation could occur, for example, if private individuals commissioned a new house. There are also projects where municipalities collaborate with a developer in the development of a new residential area. In those situations, it is difficult to determine from the data of Kadaster if and what market participants are involved, and whether that has led to a higher market concentration. ACM recommends the Dutch central government to make the market more transparent so that the market positions of larger market participants can be determined on the basis of factual information. Municipalities will then be able to bring their policy in line with the latest information, for example when granting land plots, in tender processes or when ‘splitting up’ a residential site or developing one in phases.