Nordea: Housing Price Spiral Developing in Copenhagen

Nordea Bank Abp's Chief Economist, Helge J. Pedersen, assesses that the rise in housing prices in Denmark, especially in the Copenhagen area, is developing into an unsustainable price spiral. While real housing prices in Denmark have risen more moderately than in many other countries post-pandemic, Copenhagen's price development is exceptional.

The price increase is driven by several factors, including increased household savings during the pandemic, the rise of remote work, and limited supply due to shortages of construction materials and labor. Urbanization and increased migration to major cities have further accelerated demand, while prices in rural areas have remained lower or even declined.

Pedersen criticizes the government's proposal to ease financing for first-time buyers by extending repayment periods to 40 years. He argues the proposal is likely to increase demand without increasing supply, leading to further price hikes. Past experiences suggest that lower monthly payments are capitalized into structurally higher housing prices.

The Chief Economist suggests that the solution to Copenhagen's housing market problems lies in either limiting demand or increasing supply. Without such measures, price increases will continue, making it harder for young people and ordinary earners to enter the market.