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Supply squeeze: Why Norway’s housing market will struggle in the mid-term

With Norway's central bank hinting at a further interest rate hike in December, real estate industry experts are worried the high policy rate will negatively impact new housing projects.

Published: 21 September 2023 16:33 CEST
Oslo building
In recent months, Norwegian media have dedicated a lot of attention to the acute shortage of housing supply in parts of the country, with eastern Norway emerging as the most acute pain point. Photo by Emmanuel Appiah on Unsplash

The decision by Norway’s central bank (Norges Bank) to raise its key interest rate to 4.25 percent on Thursday was a widely expected move, as the institution continues to fight inflation.

However, the announcement that the bank will likely carry out another interest rate hike in December was a big surprise to analysts.

READ MORE: What Norway’s latest interest rate announcement means for you

Aside from the finance world, the announcement also ruffled many feathers in the real estate industry, with prominent industry leaders warning about the potential consequences of the central bank’s approach.

Housing supply to take another hit

In recent months, Norwegian media have dedicated a lot of attention to the shortage of housing supply in parts of the country, with eastern Norway emerging as the most acute pain point.

New home sales in the region have fallen by almost 60 percent in the last two years, according to recent reports, which has led to eastern Norway seeing a suspension of new housing projects in recent months.

The central bank’s surprise announcement of a likely December rate hike made Carl O. Geving, managing director of the Norwegian Association of Estate Agents (Norges Eiendomsmeglerforbund), worried about an escalation of the supply shortage in the country.

In a comment to the newspaper E24, Geving warned that a high policy rate may negatively impact new housing projects.

He predicted a potential drop of 13-14 percent in housing project investments by the end of 2023.

In his opinion, this would also negatively affect the housing supply in the country, exacerbating the already precarious position of many prospective homeowners.

More expensive mortgages

As the central bank raises its key interest rate, commercial banks in Norway usually follow suit by increasing interest rates on mortgages and deposits.

That means that mortgages had become very expensive since 2021, when Norges Bank started increasing its key rate.

The central bank now forecasts that mortgage interest rates might rise to 5.7 percent in 2024 and not start falling until 2025.

At the same time, housing prices in Norway – which have fallen in August – have proven to be more resilient than most industry experts expected earlier on in the year.

Pricier mortgages and expensive homes have led many potential newcomers to Norway’s housing market to reconsider their purchase, holding off the decision to buy.

A supply crisis to manifest once interest rates start going down?

In early September, Geving told The Local that a decreasing supply will lead to problems in the market once interest rates start going down.

“You never know when the central bank will make that move, but let’s say they decide to decrease rates in 2024 and 2025, and wages continue to increase, people build up stronger personal finances, and demand spikes – that’s when you’ll have a problem,” Geving said on September 5th.

While the supply issues are expected to emerge as a problem later down the road, the rate policy signalled by Norges Bank might help push down housing prices in the country even further, contributing to what some economists already expect to be a somewhat tough autumn for the Norwegian economy and housing market.

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PROPERTY

Why do all homes in Norway seem to look the same?

Of course not every home in Norway is identical but there are several major trends that are easily identifiable in most cities that might give you the impression that they all look the same.

Published: 25 June 2024 12:47 CEST
Why do all homes in Norway seem to look the same?

Before we explain the similarities there is plenty of variety among homes in Norway.

Different regions in Norway have their own styles, and people’s personal tastes and modern trends also play a role.

Furthermore, urban areas are way more eclectic compared to rural and more isolated regions, and at the same time, the biggest cities need to deal with population pressure.

READ MORE: What you need to know about the Norwegian housing model

However, it is undeniable that a few significant trends dominate the landscape in most of Norway’s towns and cities.

The traditional wooden house

The first trend is the traditional wooden house, which is often medium-sized and square.

These homes, painted in classic colours such as white, dark red, ochre yellow, or brown, are omnipresent across Norway.

While you will easily spot them in any smaller town, even the two largest cities – Oslo and Bergen – still boast many traditional wooden houses.

READ MORE: Oslo versus Bergen: Five big differences between Norway’s two largest cities

If you take a walk to Bergen’s Old Town, you’ll find an array of traditional wooden houses in the area behind the UNESCO-protected Bryggen Wharf. Many wooden houses can also be found in the centrally located Verftet neighbourhood on the Nordnes peninsula.

Their uniform appearance stems from historical building practices and the practicality of using wood as a primary construction material in a forest-rich country.

These homes not only serve as a testament to Norway’s architectural heritage but also adapt well to the country’s climate, providing insulation against the cold.

Additionally, local building regulations often dictate specific architectural styles to preserve the cultural heritage of Norwegian towns and villages – especially in neighbourhoods with a rich past.

Lofoten houses

Wooden houses in Reine, Lofoten Islands, northern Norway. Photo by Jonas Geschke on Unsplash

Modern Norwegian housing

The second trend includes more modern housing solutions, such as terraced houses, new builds, and apartment blocks.

These structures are increasingly common in urban areas where space is at a premium. Many construction projects in the outskirts of Bergen feature this kind of development as the city expands to accommodate its growing population.

This trend reflects contemporary architectural styles and is often designed with energy efficiency and sustainability in mind.

The uniformity here is driven by modern urban planning in cities like Oslo, Bergen, Trondheim, and Stavanger.

Aker Brygge

The Aker Brygge wharf area in central Oslo. Photo by Meriç Dağlı on Unsplash

Traditional vs modern: What advocates of the two styles say

Supporters of traditional Norwegian homes argue that these old structures are very durable. They point out that the wood used in homes from 40 to over 80 years ago comes from slow-growing trees, making it dense and rot-resistant.

Compared to modern building materials, which they often view as inferior, they claim that wood in these older homes ensures longevity – as long as the house has been adequately maintained.

READ MORE: What you should know before buying a house in rural Norway

Furthermore, the longevity of old wooden houses in Norway is well-documented. Many homes built in the early 20th century still retain their original structure despite multiple renovations.

As long as the wood remains dry, it can last for decades – or even centuries.

On the other hand, with advancements in building technology, modern houses are designed to minimise heat loss, reduce energy consumption, and lower utility bills – particularly relevant in the cost-of-living crisis plaguing Norway and Europe in recent years.

These homes often feature high-level insulation, double or triple-glazed windows, and advanced heating systems, which make them more environmentally friendly and cost-effective in the long run.

Another key advantage of modern homes is their adherence to strict building codes and standards.

Today, Norwegian houses are built to high specifications, ensuring safety, comfort, and durability. Mandated ventilation systems improve indoor air quality and prevent issues like mould and dampness.

In addition to technical improvements, modern homes are also designed with contemporary lifestyles in mind. Open floor plans and larger windows create bright and adaptable living spaces.

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