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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

What you need to know if you want to rent out a room or annexe in Norway

If you’ve got a spare room or annexe you might want to put it to good use, especially as the earnings could be tax-free. Still, there are several rules in Norway you’ll need to be aware of.

Published: 14 June 2024 15:28 CEST
What you need to know if you want to rent out a room or annexe in Norway

Plenty of homes in Norway, especially those that are more expensive, come with an independent annexe, and ad listings will typically list how much you can earn if you were to rent this out.

You may also have a spare room or basement you want to put to good use. Many see renting out annexes and basements as a great way to boost their income or offset the cost of their mortgage.

Long-term or short-term?

Before putting a room, annexe, or basement on the market for rent, you must have a rough idea of how long you want to rent it out.

The length of the tenancy will affect things like taxes and where you would want to list the property.

For example, Airbnb makes more sense for those wanting to rent a room or their property for a few weeks.

In Norway, rental income up to 10,000 kroner from short-term rentals is tax-free, provided each rental period is less than 30 days. After this limit has been reached, 85 percent of income is taxable at a rate of 22 percent.

READ MORE: The rules for renting out your home on Airbnb in Norway

If you have a dormitory, annexe or studio on your property that you wish to rent out for longer, then you will need to check that it meets the legal requirements to be rented out.

One of the most important distinctions is often made between whether the area you wish to rent out is an “independent unit” or part of the existing housing.

Whether the home has a separate entrance is typically one of the key distinguishers. Spaces that are considered independent units have stricter requirements, such as a private bathroom and fire safety measures.

Spaces must also have ceilings of at least two metres, with slightly different rules for sloping roofs. Certain rooms will also need to have windows and escape windows and a fire separation between the apartments.

Dormitories (hybel) are not considered independent housing, but the tenant must still have access to a bathroom and toilet, even if it isn’t their own private bathroom. The other rooms must be suitable for permanent residence under the rules of your local authority.

You can rent out a room in your home. However, the tenant must have access to a toilet in the home.

Should you choose to rent out a space, be that a room or dormitory, that doesn’t meet requirements, you could be legally liable for any incidents, or the tenant may have the right to terminate the tenancy or demand a reduction in rent.

Most Norwegians turn to Hybel.no or Finn.no to rent out a room or annexe. 

The tax rules

Renting out rooms or dormitories is so popular because the income can be tax-free in many cases.

A few requirements must be met for the income to be tax-free. You can rent out several dormitories tax-free on the same property, but there cannot be more than one “family flat/ familieleilighet” on the property. These are self-contained apartments suited for two adults and a child.

You must also collect less than half the rental value of the entire property. Alternatively, rental income is tax-free if all or part of the home is rented out for less than 20,000 kroner in the income year.

Norway’s tax administration has an online wizard that will give you an overview of whether your rental income will be tax-free.

Your responsibility as a landlord

As you will all be aware, renting out a room isn’t as easy as posting an ad and waiting for the tax-free income to roll in.

For example, you will need to have a proper contract in place, and the deposit must be paid into a separate account from the tenant or landlord.

There are also rules on when a landlord can access the property, and they will typically always need the permission of the tenant to access their space.

In addition, there are rules on when a landlord can raise the rent and how much by.

All this is as well as being aware of the rules and responsibilities for who covers what in Norway when things go wrong.

Luckily, there are plenty of organisations and resources, such as Husleie.no, that can offer landlords advice. These resources help with things like rent collection, contacts, and deposit accounts.

READ ALSO: The most common disputes between tenants and landlords

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