Sinking Foundations, Rising Costs

Foundation problems have impacted nearly half a million homes across the Netherlands, with potential damages projected to reach up to 60 billion euros nationwide. Approximately a million buildings constructed before 1975, primarily on wooden piles or shallow foundations, face a heightened risk of foundation damage. The financial burden is far from trivial. Restoration expenses can range between 20% to 25% of the average value of the property, leading to costs from 50,000 to 100,000 euros if the house needs full repair. For about 80% of houses with some foundation issues, the estimated repair costs are around 10,000 euros. A small fraction, between 2% and 9% of all homes, will require full foundation restoration.

Historic cities such as Amsterdam, Rotterdam, Gouda, Delft, Leiden, Haarlem, and Zaandam bear the brunt of these problems, facing significant risks of pole rot and differential settlements, as the risk maps show below. This is largely attributable to the widespread use of wooden piles and shallow foundations in these areas.

Differential Settlements

Risk of pole rot (left) and differential settlements (right) source: klimaateffectenatlas

Broadly, foundations can be categorized into two types: those built on wooden piles and those shallow foundations. Foundation problems mainly arise from the degradation of piles and differential settlements. Differential settlement is related to variations in subsoil composition and unequal weight distribution, causing buildings to sink unevenly and start leaning.

Several factors contribute to foundation problems, including land subsidence driven by changes in groundwater levels, increased construction activity, and extreme drought conditions. The risk of experiencing differential settlements, particularly those associated with droughts, seems to be increasing in the context of climate change. Following the droughts of 2018, 2019, and 2020, there was a noticeable increase in damage reports, due to exceptionally low groundwater levels.
From an economic perspective, foundation damage entails a wide range of consequences. The direct implication is damage to the property, manifesting as cracks in the walls or doors and windows that stick, with limited repair cost on average. However, the scenario shifts dramatically when full restoration is required. Such repairs are not typically covered by insurance, leaving the homeowner in a precarious financial position. They may face increased debt —on top of any existing mortgage— or even a substantial loss in their property value.

In the housing market, foundation problems can directly impact property values. If the market fully internalizes the risk, homeowners could see a decrease in their property value due to foundation issues. Ideally, with complete information, the value of a house with foundation problems, plus the cost of repairs, should equal the value of a similar property without such issues.

Evidence regarding the impact of foundation problems on house prices is limited. Recent findings indicate a significant market response: properties identified with foundation problems are sold for an average of 12% less than their estimated value without these problems. This reduction translates to an approximate loss of 47,000 euros. Interestingly, homes that have undergone foundation repairs and disclosed this information received about 2% higher sales prices than their estimated valuation without information about the foundation condition. This increase translates to an additional 13,500 euros on average. Furthermore, when comparing two similar homes, one with repaired foundations and the other with compromised foundations, the difference in value can be as significant as 60,000 euros. This amount represents the median of the estimated range of restoration costs.

The situation could become particularly difficult for homeowners with a mortgage. Mortgages are typically granted based on the property value, often involving a high loan-to-value ratio. However, the property value could diminish due to compromised foundations, and homeowners could face a significant reduction in equity. This scenario also introduces a latent risk for banks and insurers, which may not have fully accounted for such contingencies.
At the heart of the discussion is the lack of accurate information regarding the foundation status of residential properties. This knowledge gap leads to a significant portion of homebuyers —approximately 85%— purchasing homes without a full understanding of their condition. The limited availability of detailed information about foundation conditions and soil subsidence becomes even more problematic due to the reluctance of those selling homes to reveal these issues.