Dutch central bank president Klaas Knot has called on the cabinet to reverse legislation extending rent controls to most of the rental housing market, saying the supply of rental housing is shrinking and prices are going up.

The regulations, which came into effect in July, set a maximum price based on the number of points a property is worth, depending on size, luxury and energy label. Landlords argue that this has made it unattractive financially to rent out smaller properties in particular, and have begun selling them as soon as the current tenant moves out.

“I don’t want to give a political judgment on a law that has been passed by parliament, but I am looking at the consequences,” Knot said in an interview with news agency ANP on the fringes of the IMF’s annual meeting in Washington.

The number of rental properties not covered by social housing regulations is down 38% this year, compared with 2023, he said. In addition, small landlords, who often have a couple of properties as a pension, are being hit by higher taxes, he said.

At the same time, he said, large investors are keeping their properties but are becoming increasingly reluctant to invest in mid-market rentals, which are rent-controlled but do not have income restrictions for tenants.

“If you put all these things together, then it is difficult to be positive about this legislation,” Knot said. “It is better to be half right than to be half wrong.”

The central bank president, who is an outspoken critic of the generous Dutch mortgage tax relief system, said he did welcome measures introduced by the cabinet to boost housing construction.

These include cutting red tape and steps to end land speculation. “But we should not expect any wonders, and that this will lead to a downturn in house price rises in the short term,” he said.

The right-wing cabinet has adopted the previous government’s target of building 100,000 new homes a year in an effort to end the shortage of housing.