Why Top-Ups and Splits Are Becoming Less Attractive for Housing in the Netherlands

Why Top-Ups and Splits Are Becoming Less Attractive for Housing in the Netherlands

The Dutch government has set ambitious targets to tackle the housing shortage, aiming to create 15,000 additional homes per year through renovations. However, a recent report by ING reveals that schemes like adding extra floors—known as top-ups—and splitting larger buildings are losing their financial appeal. Between 2018 and 2022, the number of homes generated this way plunged from around 17,500 to just 10,700, making it increasingly challenging to meet national housing goals.

In this article, we explore the key drivers behind this trend, examine the financial and regulatory factors at play, and consider what measures the government could introduce to reignite interest in renovation-based housing solutions.

Understanding Top-Ups and Building Splits

Top-ups involve constructing additional living floors atop existing residential blocks or apartment buildings. This method can be a relatively quick way to add units in areas where land is scarce, particularly in urban centres.

Splitting larger buildings into multiple self-contained apartments can also boost housing supply without altering the neighbourhood footprint. Both approaches leverage existing structures, reducing the need for new land purchases and limiting urban sprawl.

Historically, renovations have accounted for about 15% of all new homes delivered annually in the Netherlands. Yet, the appeal of these methods has waned in recent years.

Financial Pressures: Rising Costs vs. Falling Returns

According to the ING analysis, several economic factors have combined to shrink profit margins for investors and housing corporations:

1. Sharp Increases in Material and Labour Costs • Over the last four years, building material prices have risen by roughly 25%. • Labour costs in the construction sector have also climbed by an estimated 25%.

2. Low Rental Yields • New rent regulation measures introduced under former Housing Minister Hugo de Jonge have capped rent increases and tightened profit expectations for private investors. • Lower potential rents mean a longer payback period for renovation projects, reducing the attractiveness of top-up conversions.

3. Higher Property Taxes • Recent hikes in municipal property levies and changes to the valuation system have further squeezed margins for renovators and investors.

With costs up and returns down, the economics of retrofitting buildings no longer stack up as they once did.

Impact on the Dutch Housing Shortage

The Netherlands is grappling with a chronic shortage of affordable rental homes. The dip in renovations has contributed to a growing gap between supply and demand:

• The shortfall of social and mid-market rental properties has pushed waiting lists for woningcorporaties (municipal housing corporations) to record highs.
• Young professionals and international tenants face steep competition and rising rents in major cities like Amsterdam, Rotterdam, and Utrecht.
• Pressure on existing housing stock exacerbates tensions in the rental market, leading to potential affordability and availability crises.

Without a corrective policy framework, the downward trend in renovation-based home creation risks prolonging the housing crunch.

Potential Government Measures to Reverse the Trend

The Jetten Cabinet has acknowledged the challenge and indicated plans to intervene, though details remain scarce. Policymakers could consider a mix of incentives and reforms:

• Targeted Subsidies or Tax Credits: Offering financial support for renovation projects, either through direct grants or tax relief, could offset higher material and labour costs.
• Flexible Rent Regulations: Allowing moderate rent increases on newly renovated units might improve rental yields while still protecting tenants.
• Streamlined Permitting Processes: Reducing bureaucratic hurdles for top-up and split applications can accelerate project timelines and lower administrative costs.
• Public–Private Partnerships: Collaborations between municipalities and woningcorporaties could unlock additional funding and share risks on renovation schemes.

Each of these measures entails trade-offs between taxpayer expense, tenant protection, and market viability. Striking the right balance will be critical for any successful policy shift.

Looking Ahead: Balancing Growth and Affordability

As the Netherlands strives to boost housing stock, renovation-based solutions remain a valuable tool—provided they become financially viable again. Stakeholders from local governments, housing associations, and private investors must engage in dialogue to design incentives that support both supply growth and tenant welfare.

Industry experts suggest monitoring the impact of any new measures closely, ensuring they deliver the intended surge in top-up and split projects without unintended side effects like rent spikes or reduced tenant protections.

Conclusion

The decline in new homes created through top-ups and building splits is a warning signal for the Dutch rental market. High renovation costs, depressed rental yields, and rising taxes have undermined the business case for these projects at precisely the time they are most needed. While the government has signalled its intent to act, detailed policies must be rolled out swiftly to meet the ambitious housing targets.

For tenants and landlords looking to navigate the evolving market, staying informed about regulatory changes and emerging incentives will be key. And for anyone searching for their next rental home, Luntero remains the easiest way to browse the latest listings across the Netherlands.

Looking for your next rental in the Netherlands? Visit Luntero for the easiest way to discover available listings and expert tips on navigating the Dutch housing market.