Norway’s notoriously high housing prices, especially in the Oslo area, are showing signs of flattening out in the midst of an unprecedented homebuilding boom. That’s expected to further cool off the red-hot real estate market of the past several years, but experts warn it’s still way too expensive for far too many to buy a home.
A series of recent reports on housing sales has shown a clear trend over the past few months: The market is slowing down. Real estate brokers and bank economists have reported, for example, that prospective buyers are more cautious, the crowds at open houses are thinning out, there are fewer first-time buyers accompanied by parents, it’s taking longer to sell a home and price offers are coming down. Sellers can no longer expect to sell their homes after just one showing, for example, or that bidding will send the price higher than its appraisal.
“We have noticed a dampening in the housing market that’s intensifying in 2017,” Terje Halvorsen, chief executive of DNB Eiendom, the real estate arm of Norway’s biggest bank, told newspaper Aftenposten in early May. By last weekend, Norwegian Broadcasting (NRK) was reporting another slowdown. Brokers now think that prospective sellers, sensing a turn in the market, are rushing to put their homes on the market while prices are still high. Oslo’s real estate association reported more than 1,500 showings last weekend, “unusually high” for what otherwise was the long Ascension Day holiday weekend. With many people out of town, the number of property showings usually falls, but that didn’t happen. Sellers, one broker told NRK, “think the market is falling and that prices will go down, so they’re trying to sell now.”
The simple law of supply and demand is also likely clicking in. After much of Oslo’s price spikes were blamed on a lack of housing supply to satisfy the demands of a growing population, developers rushed to build leiligheter (condominiums) and rekkehus (row houses) all over the Oslo area. Newspaper Dagens Næringsliv (DN) reported in April that never before had city officials granted more building permits. Record numbers of housing units were also already under construction, creating a building boom greater than even those of the post-war years, when a critical housing shortage had to be met. DN reported how fresh numbers from state statistics bureau SSB showed clear growth in building starts since 2014.
SSB could also confirm that housing prices started flattening out this past winter and spring. A “certain amount of pent-up demand” was expected to keep investment in housing developments high this year, but the chief economist at Handelsbanken, Kari Due-Andresen, told DN that the market was getting “nervous.” That can cool off the building boom as well, when supply outpaces demand. Fewer new housing units were sold in February and March and more developers are seeing that their projects aren’t selling out before construction begins.
NRK reported earlier this week that the total number of unsold homes on the market in May in Oslo amounted to 2,200, up from 1,400 in May of last year. Jan Ludvig Andreassen, chief economist at Eika Gruppen, told DN that he thinks there will still be “very many” unsold housing units on the market after the summer holidays. Tougher lending requirements have also contributed to the market slowdown, with some banks tightening their loan qualification procedure even more than state authorities have demanded. “The market is returning to more normal levels,” Christian Dreyer, chief executive of the national real estate brokers’ organization Eiendom Norge, told NRK on Sunday.
Affordability still a problem
While many welcome a halt in the soaring home prices of the past few years, those who bought when prices peaked won’t enjoy gains on their investments and may even find themselves vulnerable to losses. Others claim prices are unlikely to fall enough to significantly improve affordability.
“If you’re a nurse, a teacher or single, you still won’t manage to buy a nice apartment in Oslo,” Evelyn Dyb, a sociologist and researcher at the College of Oslo and Akershus. “It’s extremely expensive.” Dyb points out that there are no longer any residential real estate developers in Oslo with a social mission of providing affordable housing.
Developers like OBOS (Oslo Bolig- og Sparelag) once filled that role, but Dyb noted “it’s been a long time since OBOS took on any social responsibility.” That’s because deregulation of the housing market in the 1980s stripped OBOS and other housing collectives of the special role they once played in conjunction with city officials. Suddenly OBOS had to acquire lots, build and sell their housing units under “normal market conditions,” Rolf Barlindhaug of the Norwegian Institute for City and Regional Research told Aftenposten.
Private market forces, Norway’s booming economy and the tax advantages of owning homes as opposed to renting all contributed to the sharp rise in home prices. The city of Oslo, now under Labour Party control, and other municipalities are now looking for other solutions to provide more affordable housing. That may include offering city-owned property to developers who agree to build housing units that can be sold lower than market rates.
That’s happening in Sandnes, south of Stavanger, where developers are invited to compete to buy city property at moderate prices in return for building quality housing at prices 15 to 20 percent below average market prices. Buyers would also have to meet certain criteria, for example that they haven’t owned property before or will live in the home for at least three years before selling or renting it out. Researcher Dyb said it will take political willingness and new sorts of developers to address the lack of affordable housing in Norway. “I hope it won’t be impossible for singles to buy a home,” she said, or those working in important fields like teaching, health care and law enforcement that don’t offer high salaries.