Parents making tax-free donations to their children to help them buy a home has become more popular over the past few years, and is driving up house prices across the Netherlands, economists say.

Tax-free gifts in the Netherlands

A new law in 2017 made it possible for parents to “gift” up to 100.000 euros to their children to assist them in buying their first home. While the exact number of parents making these substantial tax-free donations is unknown, it is estimated that the number has more than doubled since 2017, to 20.000 donations a year. The Ministry of Finance reckons that up to 10 million euros in gift tax are missed every year because of the increased number of donations. 

On the one hand, this scheme could help many first-time buyers find a home. However, economists at RaboResearch, Rabobank's knowledge institute, say it has resulted in house prices in the Netherlands rising, and are calling for the scheme to be brought to an end. 

Nic Vrieselaar of RaboResearch told the AD: “the gift is likely to be used to outbid or buy a larger home. In our opinion, this led to house prices rising much faster than they would have otherwise, leaving you professionals without wealthy parents out of the boat, or having to borrow even more to have a chance at owning a house.”

House prices in the Netherlands

House prices have been steadily rising since the last economic crash, and experts expect the current coronavirus crisis to result in a drop in house prices. Vrieselaar predicts prices will drop gradually going into the fourth quarter of 2020, and will continue to fall in 2021. 

On average, in 2019, houses across the country became around 20.000 euros more expensive, while the average annual salary only rose by around 500 euros. Because of the coronavirus pandemic, it is also expected to become more difficult for young professionals who were planning on investing in their first property in the near future, as they are typically on a more flexible contract and are likely to be the first to lose their jobs. 

High increases in property prices over the last few decades have meant that for many people, the prospect of owning a home has become inaccessible. Not only are they competing with investors and fellow house-hunters (with potentially higher earrings), but the scheme means they are also competing with people who receive up to 100.000 euros from their parents and so can over-bid on their dream home.

Many people living in Dutch cities are forced to rent well into their 30s, and share homes with friends and flatmates. 

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