Chart of the Week: Norway’s Home-Price Boom

IMF Blog, July 10, 2017

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House prices in Oslo are among the world’s highest when measured by the average cost of a home relative to household median income.
Prices in Oslo are a visible symptom of a real estate boom across Norway, a country of "5.2 million people."
Nationwide, the cost of a home relative to income has "almost doubled since the mid-1990s."
Strong demand drivers cited: growing incomes, the rising number of households relative to housing supply, low interest rates, and generous tax incentives for home ownership.

The Chart of the Week compares Norway’s house price-to-income ratio with that in the "35 countries of the Organization for Economic Cooperation and Development" and euro area countries.
Household debt, measured "in percent of disposable income―has reached historic levels and is among the highest in the OECD."
Risk identified: A large correction in house prices—driven for example by slower real income growth, a reverse in sentiment, or interest rate hikes—could weaken household finances and depress private demand, which could in turn hurt corporate and bank earnings.

The IMF paper "Norway: Selected Issues," published on "July 5" in conjunction with the Article IV Consultation, communicates these risks.
Norwegian authorities have taken steps including:
- requiring banks to hold more capital;
- introducing tighter mortgage regulations.
A debt-to-income limit on new mortgages introduced at the beginning of this year is noted as producing "some early signs of softening in housing market conditions" and is described as "in line with IMF’s past advice."

Possible further policy measures listed:
- tighter limits on loan-to-value ratios;
- higher mortgage risk weights;
- reducing the scope for banks to deviate from mortgage regulations.

Measures proposed to strengthen resilience of the financial sector and the broader economy:
- reducing tax preferences for housing;
- relaxing constraints on new property construction;
- developing the rental market to provide more alternatives to home ownership.

The Editors, July 10, 2017.