Dutch jobs go as house prices fall

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By Leith van Onselen

Earlier this month, I posted on how the Netherlands was facing a potential economic crisis on the back a severe housing correction, whereby house prices fell by -8% in the year to December 2012 to be down -18% since prices peaked in 2008, pulling many Dutch households into negative equity (see next chart).

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The release of labour force data overnight suggested the Netherlands’ economy has deteriorated further, with Dutch unemployment increasing to 8.1%, a level not seen since the 1980s, with job losses most accute in the building industry (see next chart).

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The Netherlands’ Central Bureau for Statistics said the increase in unemployment had been sharpest among 25 to 45-year-olds. Job losses have been concentrated in domestic industries, including the building trade, which has been hit hard by a falling housing market.

The jump in unemployment follows the contraction in the Dutch economy, whereby GDP has contracted by -1.2% over the past year (see next chart).

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The sharp deterioration in the Dutch economy is placing pressure on the central government to abandon austerity measures, which it has pursued for the best part of two years and is partly responsible for the contraction in demand. According to the Financial Times:

When Amsterdam began implementing austerity measures two years ago, the Netherlands had the lowest jobless level… Employers engaged in so-called “labour hoarding” after the global financial crisis of 2008, and were reluctant to fire workers in the expectation of a rapid return to economic growth.

At that time forecasters were surprised by the low levels of unemployment, which did not rise as fast as extrapolations from the fall in economic activity would have predicted.

As the euro crisis and economic slowdown have dragged into years, labour hoarding has disappeared and unemployment has risen steadily. With bankruptcies also reaching record levels in February, employers no longer feel confident they can hold on to workers.

The pace of the rise in unemployment now seems to be exceeding expectations.


As I noted last time, the Dutch are now paying the price for years of poor housing policy, including:

  • ridiculously easy credit, with a third of mortgages guaranteed by the government;
  • mortgage interest tax relief and generous subsidies offered to home buyers;
  • a dysfunctional rental market that encourages households to strive for owner-occupation; and
  • severely restricted housing supply, which ensures that changes in demand flow predominantly into homes prices rather than new construction.

There are lessons here for all economies.


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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.