How the Netherlands turns transparency with property values into trust with taxpayers
By Letty Reimerink
AMSTERDAM, The Netherlands — Last month, the Netherlands launched a website that soon will allow anyone to find out the value of any privately owned property in the entire country. It’s useful information if you’re buying a house and want to look at comparable property values. It’s also interesting information if you’re curious what your neighbor’s house is worth.
The site is just one byproduct of one of the world’s most sophisticated setups for handling property valuations. It’s also evidence of the high level of transparency and citizen engagement that the Dutch have baked into their system of property taxation. Those qualities make the Netherlands a country that any city, region or country with a property tax — or thinking about starting one — can learn from.
The Dutch system has turned information about property values and taxes into a public good. Authorities share responsibility with citizens for keeping the data up to date — and updates happen continuously, rather than on ad-hoc cycles at the discretion of politicians. As the quality of these property assessments has improved, the number of tax appeals has gone down — and public trust in the fairness of the system has gone up.
“This system is not an overnight invention, but has developed bit by bit over a longer period of time,” says Ruud Kathmann, who is part of the management team of the Council for Real Estate Assessment, an independent governing body that supervises property valuations in the Netherlands. “And it’s still evolving.”
Local taxation, central monitoring
Property taxes are an important means of financing government operations in the Netherlands, at both the local and national levels. (Regional water-management bodies known as “polderboards” also rely on property taxes.) Annually, municipalities levy €8 billion in local taxes that are based on the value of real estate. This accounts for about one-sixth of local government budgets, and much of the revenue they are able to raise on their own.
No tax is especially popular with citizens, of course, but the property tax is popular with local finance experts. In a recent book called A Good Tax, Joan Youngman writes of the benefits of property taxes as a revenue-raising tool for local authorities. Youngman, a senior fellow at the Lincoln Institute of Land Policy, argues that property taxes are visible and transparent compared with other taxes; are relatively simple for taxpayers to pay; are hard to dodge because property can’t be moved; and provide taxpayers a signal as to the cost of public services.
For Dutch cities facing the daily challenges of growth and needs to invest in infrastructure, housing and other services, this income is vital. And still, their property taxes are among the lowest in the world, says Marco Kuijper, strategy developer at the Council for Real Estate Assessment. “In a well-off neighborhood in the Netherlands, they will amount to about 0.2 percent of the real estate value,” Kuijper says, “whereas in the U. S. it could be as much as 4 to 6 percent.”
But what really sets the Netherlands apart is the accuracy and timeliness with which property values are assessed on a mass basis. As Youngman puts it: “Accurate valuation is key to a well-functioning property tax.”
Responsibility for this lies with the country’s 390 municipalities. They are bolstered by a strong legal foundation laid out in a 1995 law, the Special Act for Real Estate Assessment, known as Wet WOZ in Dutch. The municipalities are also supported by the council Kathmann and Kuijper work for, which was created by the 1995 law. With 20 employees and a budget of €4 million, this Council for Real Estate Assessment supervises the localities in this area, and on a national level acts as a sort of property-tax think tank for the Ministry of Finance. Half of the council’s funding comes from municipalities, with the other half split between the national government and the polderboards.
Quality of data is everything
The system that is used combines objective data on property, like plot size, year of construction and type of property. These data are gathered from a centralized system of “base registers” that includes official registries of properties, persons, addresses and more. However, “this only tells us a small piece of the story,” says Kathmann. “We also need subjective information on the quality and maintenance of the property and its market value.”
For that, the municipalities mine data out of real estate ads. In the Netherlands, real estate agents market properties primarily through one website, funda.nl. The site offers photos and detailed descriptions of every property that is up for sale. A computer model that has been developed for taxation not only copies all these available market data, but also analyzes descriptions of properties.
“It is often more interesting to see what is omitted in these property descriptions than what is written, because it indicates that something is lacking,” Kathmann says. “For example, if there is no mention of the heating system in an older property, then it probably hasn’t been renewed for some time. The system is smart enough to filter out this information.”
Municipalities jointly gather these data in a central system and then distribute them to the local level. Each municipality cross-checks the information with data in their own local systems. This is done by highly qualified assessors. Municipalities, especially the smaller ones, often cooperate on this and share an assessor.
When cross-checking all the available data, municipalities can stumble upon irregularities that require further research. For example, when a property has been sold for a significantly higher amount than similar properties, they will collect additional data. The explanation could be that someone has added an annex or has renovated the kitchen. This information surfaces through other data collection methods the municipalities use, like aerial photos and property visits.
Under the 1995 law, these assessments were done once every four years. But since 2007, it has been done annually. In fact, valuation is now simply an ongoing and highly professionalized process for municipalities.
By contrast, there’s a tendency in other countries, regions and cities that use property taxation prefer to procrastinate on their revaluations. “There’s a political incentive to not revalue,” Youngman says. “It’s politically easier to just keep the values the same year after year so there’s no surprises and everyone just sees the same number on their tax bill.” She notes that properties in England have not been revalued in decades. In the suburbs of New York City, Nassau County once went 70 years without revaluing properties before being forced to by judicial action.
The problem, Youngman says, “is that the longer you go without a revaluation, the harder it gets. Because that sticker shock you were hoping to avoid just gets compounded.” Out-of-date valuations also breed inequity: Properties that are gaining in value, often in wealthier areas, become under-taxed, while properties that are losing value, often in poorer areas, become over-taxed.
The essential thing about the Dutch system, Kathmann agrees, “is that data are gathered continuously, not just once a year. This is an enormous effort for the municipalities. The Council for Real Estate Assessments supervises them in how to organize their work processes to do the job as efficiently as possible, and checks periodically if their taxations fit the agreed upon standards. So the quality of the data is constantly being improved, leading to an annual assessment of each property.”
Transparency and trust
The ultimate goal of all of this effort is to make the real estate taxation system more transparent, so that people trust the system and are not reluctant in paying their property-related taxes. The Council sees its mission as promoting trust. Kathmann says the effort pays for itself.
“Before 2007, when we introduced the annual taxation, 4 percent of the people would officially object to their property tax assessment,” Kathmann says. “This doesn’t seem like much, but these appeals are highly costly. Now, it is only about 1 percent that still objects.”
Another aspect of building trust is the role citizens themselves play in the system. “The idea is that citizens receive the estimated value of their property a few months before the official publication date,” explains Kuijper. “In some municipalities, they can give online feedback on the data used to assess the value.”
Some municipalities have been involved in a pilot seeking out citizen input on property valuations. One of them is Tilburg, a city of 200,000 in the south of the Netherlands. In 2012, city officials selected 2,500 privately owned dwellings in one part of the city and made the data underlying the real estate taxation accessible to the owners through a private online portal. They could check the data and either agree or make comments.
Walter van Zijp of the municipality says 40 percent of the people responded — and of those, two-thirds agreed with the valuation. Those who did not agree had their properties re-evaluated by the assessors, who directly communicated with the citizens. Van Zijp was very surprised by the outcome. “We expected that those who didn’t agree with the estimated value would find it too high,” he recalls. “Yet a lot of them used this opportunity to make us aware of an annex they built that was not registered in our system, leading to an increase in the value of their property.”
The feedback can lead to an increase or decrease in the final valuation. Some taxpayers hope for a lower assessment in order to pay a lower tax bill. But that’s not always the case. Kathmann explains that a higher property value also has advantages for those looking to sell, or to those who want to get an extra mortgage. The banks base their lending on the value of the property, so if it is higher, you can borrow more money.
The next year the municipality of Tilburg repeated the pilot in the same area of the city and in a new one, involving a total of 6,000 properties. “Surprisingly, in the area where we repeated the pilot, hardly anyone disagreed anymore,” says Van Zijp, indicating that people are more satisfied with the valuations now. “In the satisfaction survey following these pilots, people stated that they really appreciated this level of transparency and service the municipality was offering them.”
After two years of experimentation, the possibility for citizens to offer this kind of feedback was introduced across the entire city. “The feedback from the citizens really helps us to keep our information up-to-date,” Van Zijp concludes. “Furthermore, the amount of official appeals has remained stable, which is positive. We were afraid more openness might lead to more appeals, but that has not happened.”
“The bottom line is that people want everybody to be treated equally,” adds Kuijper. “People are prepared to give feedback and submit information if they feel this is used to make the system at large more accurate and reliable.” Kathmann continues: “If we do our job well, then you actually don’t need as many control mechanisms to detect tax evasions, because people trust the system and are more willing to pay taxes. So trust works both ways.”
Kuijper is not surprised that international institutions such as the World Bank have taken a keen interest in real estate taxation; he and Kathmann presented the Dutch system at the Bank’s Land and Poverty conference in March. “Given the continuous investments cities are facing, generating income is very important,” Kuijper says. “The property tax is generally regarded as an honest way to finance these investments, and one that is not easily evaded. You can move your money across borders nowadays, but with real estate that is a little more difficult.”
The question is whether other countries can use the Dutch system to their advantage. In many developing countries, even basic cadasters where property descriptions and ownership are registered don’t exist, making property taxation impossible. And in more developed countries, market data are not as easily shared and accessible as in the Netherlands.
Kathmann and Kuijper acknowledge that systems across countries vary greatly. “Yet, even to countries that are still at the beginning of building a system for property taxes, we convey a message of hope,” Kathmann says. “It is possible to build a solid system, but you have to take it one step at a time and not try to implement an annual taxation system right away. If you don’t have good registers, start building there.”
Youngman says the most important thing other jurisdictions can learn from the Dutch model is the continuous nature of property valuation. “The Netherlands shows what is possible and politically feasible,” she says. “Even though it’s not a system you could just pick and transplant and start the next day, it’s a model of where you can get to and the benefits of keeping things up to date.”
For his part, Kathmann thinks the most important aspect is the engagement with citizens. “Most of all,” he says, “trust your citizens, and then they will trust you too!’