Affordable housing for rent in the Sloterdijk part of Amsterdam. Flickr/CorporatieNL

But cities like Amsterdam are responding: What middle-class housing crisis?

Amsterdam has a middle-income housing problem, says the Dutch government, and the answer is smaller apartments.

Such is the thrust of a new plan recently announced by the Netherlands housing minister, proposing measures to push the construction of apartments of around 40 square meters (430 square feet) in the Amsterdam and Utrecht regions. Given that housing is in short supply in so many Western cities nowadays, the response of Amsterdam and Utrecht’s city governments to the plan is perhaps surprising. They think it stinks.

To understand what the government is proposing—and why the cities hate it—you first need to take a look at how Dutch affordable housing works. As in Germany, Dutch rents are stabilized by a rental observatory, which classifies apartments according to size, amenities, location, and quality. The observatory then fixes a maximum price for each category of apartment per square meter.

To ensure the apartments classified as cheap go to the people who need them, the Netherlands also has a housing permit system. You can apply for this special permit if you earn less than €35,739 ($39,570)—or €39,874 ($44,149) for an adult with a dependent—and have a Dutch passport. Apartments costing €710 ($786) or less per month to rent, which are mostly public housing units, are reserved for people with this housing permit. Given that the Dutch median wage in 2015 was $35,500 ($39,306), this means many adults are eligible to apply for cheaper housing. That doesn’t mean it’s always available, but with nearly half of Amsterdam rental homes controlled this way, a very large chunk of residents are partially protected.

But what happens if you’re just above the income threshold? This is the potential problem the government’s new plan wants to address. People who are slightly above median wage can’t access public-rented housing but may still struggle to afford a market rent. In Amsterdam, this means paying an average of €1,273 per month for an inner-city one-bedroom, which is quite a jump in price. The obvious answer might be to look for a smaller apartment, but that isn’t always possible. Rent-stabilization rates mean that smaller apartments often fail to command a rent that’s more than €710, which in turn means they’re only available to people with an affordable housing permit.

The government’s solution to this problem is pretty simple. They want new, smaller apartments in good locations in Amsterdam and Utrecht to be able to charge more rent. Keeping above the €710 a month limit but supposedly below €1,000, they’d plug a perceived gap for moderately prosperous singles and childless couples. Developers and investors would also have more incentive to build, knowing that the profits for their housing could be higher. Put this way, it sounds like a win-win.

The Amsterdam and Utrecht governments, however, say they smell a rat. Their cities are already building plenty of housing of this kind, they insist, without sweeteners for developers. What is really needed is larger affordable units for families. Utrecht housing commissioner Paulus Jansen told newspaper de Volkskrant that:

“There are plenty of small flats [in Utrecht] and they need no stimulus. On the contrary, we now have 7,000 of those flats in the pipeline, to be rented at current levels. Investors are lining up. If you raise the rents, you’re just fattening up the landlord.”

Amsterdam’s housing commissioner cites similar figures in the same article. The city started building 8,376 new homes in 2015, most of which will rent for less than €1,000 a month. Seen in this light, the government’s plan seems less benevolent—not so much a plan to help the squeezed middle as a way to weaken tenant protection and push people into smaller flats for higher rents. Once you start finding loopholes to change rent-stabilization laws, the thinking goes, what's to stop more tinkering?

Positions on either side may become entrenched, but seen from outside the debate reveals something fairly encouraging. That by (admittedly low) international standards, Dutch arrangements for affordable housing up until now have worked relatively well.

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