The Netherlands: The Netherworld of the Dutch Mistreatment of Land Value - by Fred E. Foldvary

The Netherlands became a giant of world trade, finance, and commerce before the United Kingdom. The Dutch had an empire with lands in the Americas, Africa, and East Indies, and they pioneered stock markets and international banking. Published data on Dutch interest rates date from 1560. Today, banking remains a major industry in The Netherlands, and much of the lending is to real estate. Thus the fate of The Netherlands is tied to the real estate cycle.

As elsewhere, the Dutch government subsidizes land values in several ways. One fourth of mortgages are subsidized by a ‘national mortgage guarantee plan’ that, by eliminating the default risk for the lender, reduces the rate paid by the borrower. Many people borrowed with “peak mortgage,” in which one borrows 120% of the value of the property to include transfer costs and taxes, hence the mortgages start “underwater.” As in the USA, mortgage interest is tax deductible. The biggest subsidy to land values is, as always, the creation of rent and land value by public goods paid for by taxing wages, including the labor embedded as “value added.”

The Dutch also imported the U.S. real estate bubble by investing funds in American mortgages, and they also borrowed from abroad. As elsewhere, the Dutch government bailed out some failing banks and nationalized others. The real estate debt and high prices will be a drag on the Dutch economy as they unwind from the bubble years. And then, since nothing fundamental will change, they will do it all over again until the next crash.

The Dutch should be especially sensitive to their land issues, since much of the land area lies beneath the ocean, the waters held up by dykes. The real estate tax (onroerendzaakbelasting) in The Netherlands are paid by both the owner and the user. Each city sets its own rates, typically between .1 and .3 percent of the property value, a very low rate. Thus little of the value of public services gets paid from land value, and since these public goods pump up rent and site values, this amounts to a gigantic subsidy that periodically becomes the engine of land speculation, a bubble, and then the crash.

Will the Dutch learn from this experience? No. History shows that the Dutch learned nothing from their tulip and land-value bubbles of the 1600s, so when the Dutch economy recovers, they will do it all over again. That is the disease of the mercantile economic system we have today.


For more go to: http://www.progress.org/2010/fold694.htm