Since the 1990’s, the financialisation of the Nordic housing markets has meant that homes are increasingly being considered as objects of investment rather than objects of use. This has fundamentally changed the dynamics of the market, creating significant imbalances between urban and rural areas and a growing divide between those who own property and those who do not. The first of four online Nordregio Forum events offered interesting perspectives on non-functional rural housing markets and the challenges of ensuring a steady supply of affordable housing.
Regional development key to achieving the Nordic vision
This year’s Nordregio Forum marks the conclusion of the Nordic Cooperation Programme on Regional Development and Planning 2017-2020. In her opening statement, Secretary-General of the Nordic Council of Ministers, Paula Lehtomäki, emphasised the important role of the regional sector in achieving the vision of becoming the world’s most sustainable and integrated region by 2030.
“It’s an ambitious vision,” Lehtomäki said. “Therefore, it’s necessary that all relevant actors are involved and contribute to our common work, not least the civil society, our own institutions and their partners.” The cooperation programme for the coming years is focused on green and inclusive development in urban and rural areas, respectively, and green, innovative and resilient regions.
Financialisation leads to segregation
Under the headline Make housing markets work for people, Professor Egon Noe of the University of Southern Denmark kicked off the debate with an introduction of the development of the Nordic housing markets in the past decades, putting the spotlight on the increased financialisation.
“In my view, the main problem is that homes have been transformed from being objects of use to being objects of investment,” Noe said. The development took off in the early 1990’s, following the liberalisation of the Nordic financial markets. “In a situation where a lot of investment was unsure, the equity of owner-occupied dwellings became increasingly interesting for the financial markets. Also, politically, the private housing market became a vehicle to stimulate economic growth.”
The financialisation has had widespread effects. Since the 1990’s, interest rates have decreased almost continuously, leading to higher property prices and in some cases spurring the housing bubble leading up to the financial crisis in the late 2000’s. All Nordic countries have seen a massive increase in the mortgage to GDP rate in the period, meaning that people are borrowing more money to invest in housing. These mortgages are however far from evenly distributed.
“As an unintended consequence, we’ve seen a self-propelling accumulation of wealth from periphery to centre, which is strongly driven by the uneven development in house prices,” Noe says. For the financial institutions, he adds, the most safe and secure investment is to lend money out in areas with increasing house prices, but this drives spatial segregation. “After the financial crisis, it became even more difficult to borrow money in rural areas. And whereas the housing markets in the cities and centres have regained their potential, the market in rural areas has not.”
Thawing the rural housing market
The situation in the rural housing market is of course closely related to the overall demographic trends of urbanisation, rural depopulation and an ageing population. In many rural communities, the declining housing demand creates challenges with empty and decaying houses.
“These empty houses contribute to a negative economic spiral and further downward pressure on the housing prices, and they also leave an impression of decay for the remaining population,” says Søren Qvist Eliasen, Senior Research Fellow at Nordregio and co-author of the report Rural Housing Challenges. “But we also register a need for renewing the building stock, due to for instance new industries developing or to provide suitable apartments for the elderly. So, at the same time, there’s a need for construction of new, modern and suitable housing opportunities.”
Cost of building higher than the market price
One of the key obstacles of breathing new life into the rural housing market is that in many areas, construction costs exceed market value. This creates financial barriers for those wanting to move to or within rural areas, as well as those planning to renovate or build new houses.
“Mortgages are typically 80 per cent of market value,” Eliasen says. “This leaves the investor with an enormous financial gap, which makes it difficult or even impossible to get the necessary loans.”
The Rural Housing Challenges report introduces a range of different measures to thaw the frozen rural housing market. Some of these measures focus on the demand side, such as investment and construction subsidies and, also, state-financed top-up loans to cover the financial gap. Others address the supply side, e.g. by supporting the demolition of empty houses and outdated apartment blocks. A third category consists of local initiatives focusing on non-market values, such as local livelihoods, commuting possibilities, natural qualities and good service infrastructure.
The complex issue of affordable housing
The segregation on the Nordic housing market is not just bound to the rural areas. Also in the cities, there are concerns about the growing entry barrier to the market, as well as the general availability of affordable housing.
“Housing affordability is an issue in all Nordic countries, says Moa Tunström, Senior Lecturer at Karlstad University and editor of the Nordregio report Building affordable homes: Challenges and solutions in the Nordic Region. Initially, the research was focused mainly on new housing development, based on the assumption that high building costs make it challenging to produce affordable housing. It quickly became clear, however, that the question of building affordable homes must be addressed in a broader context.
“Housing is seen as a commodity and an investment, but at the same time, it’s also viewed as a right in the Nordic countries,” says Tunström. “This is why social inclusion and the social sustainability of cities is such a complex issue. If you want to support vulnerable groups by building cheap housing, you risk increasing segregation. Tenure form is also frequently framed in a segregation context, as some people manage to enter the rental market but are never able to enter the ownership market.”
Will the pandemic affect housing demand?
Experts from the Nordic countries then gave a short introduction to the housing markets in the Nordic Region, all of which are strongly oriented towards ownership. As an example, Tina Sinclair, Senior Advisor at Vestland County Council, told the audience that eight out of ten Norwegians own their own homes. Private rental and social housing, therefore, make up only a small proportion of the market. The experts also reflected on potential changes as a consequence of the Covid-19 pandemic.
“I think there are interesting times ahead,” says Anna Granath Hansson, Associate Professor at the Royal Institute of Technology in Sweden. “During the pandemic, the access to the many cultural and recreational activities that the cities have to offer has been limited. Combined with the high housing prices, this reduces their attractiveness and might animate more people to move out of the cities. Another interesting question is if the pandemic will change the current emphasis on densification.”
Continued focus on housing and segregation
According to Director Kjell Nilsson, Nordregio will have a continued strong focus on housing, segregation, and green and inclusive cities in the coming years.
“One of the most important negative consequences of a highly liberalised housing market is segregation in different forms; between geographical areas and especially within the cities,” Nilsson says. “Under the upcoming Nordic Cooperation Programme for Regional Development and Planning, one of our main tasks will be to look further into the issue of segregation and evaluate the effects of the different actions pursued by the Nordic governments to fight it.”
Did you miss Nordregio Forum 2020?
You can watch the recordings of the first three sessions here: