Colliers Market Report Denmark 2023

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Residential - Colliers Market Report 2023

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Increased ownership housing burden benefits rental market

Having seen a period of unprecedented hikes, the prices of ownership housing dropped in H2 2022. The root cause was the rise in interest rates, accelerated by a forty-year inflationary high, both of which contributed to reduc ing the discretionary income of prospective homebuy ers. Because higher interest rates more than cancelled out the effect of declining prices, the so-called housing burden of new homebuyers grew. Moreover, ownership housing demand was dampened by economic uncer tainty and recession looming around the corner. The steepest drop in prices took place in Greater Copenhagen. This ties in with the fact that prices here were already the highest in Denmark, having also seen the steepest rate of increase in previous years. It is therefore only natural that fewer prospective buyers have the means to buy the same dwelling they could previously afford. However, the drop in prices follows on the heels of excep tional hikes in recent years, and at year-end 2022, prices had largely rebounded to the level seen in early 2021. Economists, among others, generally agree that the mar ket for ownership housing will not “collapse” the way it did during the financial crisis. This may be explained by e.g. more robust family budgets due to sustained low unem ployment as well as more conservative lending practices. For homeowners with financing based fully or partly on adjustable-rate mortgages, home ownership is becoming a much costlier affair. In addition, first-time homebuyers are faced with rising interest expenses, making it more expensive to enter the ownership market, just as the risk of a continued drop in prices could make it impossible for them to find the means to buy a new home.

Rising interest rates and economic uncertainty about future household budgets have historically amplified the demand for rental housing. For one thing, tenants’ housing expenses are not affected by an increase in interest rates, and rental housing offers the flexibility that many find important in times of uncertainty. In the past, the higher housing burden associated with owner ship as well as dark clouds over the economy caused a shift in favour of rental housing. In previous crises, rental prices did not track the downtrend in ownership prices, because we all need a roof over our heads, even in times of uncertainty. This pattern is expected to repeat itself in a future recession, if any.