A recent study has revealed that Amsterdam has one of the most overpriced housing markets in the world. The study determined the value of residential property in 25 major cities, with the Dutch capital considered at strong risk of being overpriced.

Amsterdam set to “bubble risk”

It’s no secret that buying a house in Amsterdam is expensive. The Global Real Estate Bubble Index by UBS, a Swiss investment bank and financial services company, has determined that Amsterdam is at a high risk of being seriously overpriced. The study analysed residential property prices in 25 major cities and determined the value of their housing markets. Amsterdam was ranked as a “bubble risk,” a bubble being a "substantial and sustained mispricing of an asset”.

The study, which covered the period between mid-2020 and mid-2021, ranked the value of the cities’ housing markets by comparing house prices valuations to factors such as income, rents and GDP. A weighted average was calculated for each city, which allowed the cities to be grouped into five categories: depressed, undervalued, fair-valued, overvalued, and bubble risk.

In total, nine cities ranked in the “bubble risk” category. Amsterdam ranked the lowest of these other cities, which included metropolises like Hong Kong and Toronto. The German city of Frankfurt was determined to be the most at-risk of experiencing a housing market bubble.

Prices on the rise in the Dutch capital

The study found that, over the years, house prices in Amsterdam have shot up, being supported by a stable economy, affordable financing options and high buy-to-let demand. Price growth dropped in 2019 and 2020 as affordability decreased and the lending criteria for a mortgage was made stricter. Supply also increased significantly in this period, just as coronavirus caused a noticeable drop in demand.

However, house prices in Amsterdam are now back on the rise and are now 5 percent more expensive than they were a year ago. This is largely down to relaxed lending criteria and lower taxes for first-time owners.

Global Real Estate Bubble Index: Top 10

According to the study, house prices, when adjusted for inflation, rose by 6 percent overall between mid-2020 and mid-2021. There were only four cities (Milan, Paris, New York and San Francisco) where house prices did not increase over the period.

Despite this, Paris is still ranked as at a high risk of developing a price bubble. The top 10 overpriced cities are ranked below. (Tokyo has a weighted average of under 1,50 and so is not in the “bubble risk” category).

1. Frankfurt – 2,16
2. Toronto – 2,02
3. Hong Kong – 1,90
4. Munich – 1,84
5. Zurich – 1,83
6. Vancouver – 1,66
7. Stockholm – 1,62
8. Paris – 1,59
9. Amsterdam – 1,58
10. Tokyo – 1,46

You can find the full report, including a detailed methodology, on the UBS website.