IVBN: Why capital is not invested automatically
This article was originally written in Dutch. This is an English translation
Even when capital is available, it does not automatically lead to new projects. For that to happen, the conditions must be right and the risks must be manageable.
By Judith Norbart, Director, IVBN
When it comes to the housing challenge, attention is rightly being paid to how national and international capital can be mobilised. But there is a crucial link between ambition and implementation: investability. After all, capital does not simply follow ambition; it seeks certainty. If that certainty is lacking, capital remains untapped, however great the social challenge may be.
Return on investment is the result of risk
In property, return on investment is not a fixed given, but the result of risk. That risk varies by project, by location and by development phase. An inner-city regeneration project faces different uncertainties to an expansion site, and investment only takes place once there is sufficient certainty. The amendment to the Act on Strengthening the Management of Social Housing contributes to this. The scope for lodging objections to housing development plans is being restricted, thereby shortening objection and appeal procedures. This leads to a significant acceleration in housing construction. At the same time, projects become more predictable and easier to finance, which enhances their investment potential.
Conditional capital and manageable risks
Capital is therefore largely conditional. It becomes available when risks are manageable and transparent. If that basis is lacking, it will not be deployed. This is not just a matter of the willingness to invest, but above all of the conditions under which doing so is justifiable. Where basic conditions are lacking, the willingness to invest simply ceases.
Current practice highlights this clearly. Grid congestion is the most recent example. Without certainty regarding an electricity connection, a project cannot be realised. In such cases, there is no longer a risk that can be priced in. It is a matter of a basic service that simply must be available.
A similar mechanism applies to the granting of permits. If procedures take a long time and outcomes are unpredictable, the risk becomes difficult to assess. Such uncertainty cannot be properly factored into pricing. Consequently, it tends to lead to projects being postponed or cancelled rather than to a greater willingness to invest. The result is that capital remains untapped, whilst the need is great. Such obstacles cannot be offset by a higher expected return.
The complexity of investment
The practice of investment is characterised by interdependence and nuance. Politicians often focus on one or two factors, whilst it is precisely the interplay of factors that is decisive. Investing is complex: virtually all factors are interrelated. Some risks are manageable and can be quantified financially, whilst others can bring a project to a complete standstill. It is precisely the overcoming of these obstacles that determines whether capital is actually deployed.
From preconditions to returns
Anyone wishing to accelerate housing construction would therefore be well advised to shift the focus to an integrated approach centred on risk mitigation. This requires a government that acts as a facilitator, predictable and efficient planning permission processes, consistent policy frameworks and the resolution of bottlenecks such as grid congestion. Only when these preconditions are in place can conditional capital actually be channelled into projects. It is not the availability of capital that determines the pace of housing construction, but the extent to which risks are manageable and investments become viable. This is precisely why risk management is not a technical detail, but a prerequisite for acceleration. Without investment viability, housing construction remains an ambition on paper. Capital follows not only ambition, but above all the certainty of conditions that actually make investment possible.