Oslo Housing Prices Soar 24% Amid ‘Social Engineering’ DebateBy
Shifting demand creates imbalances, permanent change
Says can’t stay on the high part of price cycle forever
Norway’s government may end up regretting its move to target Oslo in an effort to cool a runaway housing market, according to a leading real estate economist.
"I don’t think it’s a good idea generically to social engineer where people live," Albert Saiz, professor at Massachusetts Institute of Technology, said in an interview on Thursday.
Fueled by record low rates, house prices in western Europe’s biggest oil producer have surged by double digits in the past year, and by more than 24 percent in the capital Oslo over the same period. In December, the government tightened mortgage lending standards nationwide, but added additional restrictions on buyers in the Oslo region.
Saiz says targeting specific regional areas could have unwanted long-term effects.
"You’re shifting demand toward other areas, that’s a permanent change," he said. Such policies also “go against” people’s wishes and create market imbalances, he said.
Saiz was in Oslo speaking at a conference, but underlined that he hadn’t studied Norwegian credit regulations in great detail. The economist said he favors financial regulation as the best way to cool price growth and demand. "If you ask me, that’s the smartest move," he said. Increasing supply of dwellings by easing building regulations is only a solution for the long-term, he said.
"The good thing about credit policies is that they’re like an accordion, you can extend them and decrease them relatively easily," he said.
Geographical limitations and regulatory restrictions explain to a large degree the rigid supply of dwellings in the Norwegian capital, according to the economist. Combined with cheap access to capital, increased appetite for urban living and less inclination toward long commutes, both demand and supply market forces are underlying drivers behind the steep growth in house prices.
The million dollar question is whether Norway’s property market is now overheated. The central bank has signaled its reluctance to cut rates further even though inflation is well below its target.
"All housing markets are cyclical, you can’t be on the high part of the cycle forever," Saiz said.