Denmark’s housing market conditions worsening

Denmark’s housing market conditions continue to worsen, amidst rising interest rates and slowing economic growth. Demand remains subdued. The residential construction sector is struggling. And, house prices continue to fall.

In Q3 2023, the average price of detached/terraced houses in Denmark fell by 1.3% to DKK 16,227 (€2,177) per sq. m as compared to a year earlier, according to figures from the Association of Danish Mortgage Banks (ADMB). It was the fifth consecutive quarter of a y-o-y price fall. When adjusted for inflation, nationwide house prices dropped 3.4% over the same period.

Quarterly, detached/terraced house prices were up slightly by 1.2% (0.1% inflation-adjusted) in Q3 2023.

“There is a clear decline in private spending and a sharp fall in house prices in Denmark due to higher interest rates and erosion of purchasing power resulting from very high inflation,” said Danmarks NationalBank, the country’s central bank.

Denmark’s house price annual change

For other property type, during the year to Q3 2023:

  • The average transaction price on owner-occupied flats for sale increased slightly by 0.3% y-o-y to DKK 33,674 (€4,517) per sq. m. But prices dropped 1.9% when adjusted for inflation. Yet quarterly, prices increased by a modest 3.4% in Q3 2023.
  • Holiday home prices fell by 1.6% (-3.7% inflation-adjusted) y-o-y to an average of DKK 21,270 (€2,853) per sq. m. Quarter-on-quarter, prices were down 1.5% during the latest quarter.

Denmark Average House Price per SQM graph

 This is supported by figures released by Statistics Denmark, which showed that the price index of one-family houses in Denmark fell by 3% (-6.3% inflation-adjusted) in Q2 2023 from a year earlier, following y-o-y declines of 5.9% in Q1 2023, 5.7% in Q4 2022 and 2.1% in Q3 2022. Though quarterly, nationwide house prices rose by a modest 2.5% (2.8% inflation-adjusted) in Q2 2023, indicating that the rate of fall has decelerated.

After plummeting last year, demand remains weak this year. In the first three quarters of 2023, sales of detached/terraced houses fell slightly by 0.4% to 29,127 units from a year earlier, according to the ADMB. While sales of owner-occupied flats increased by a modest 3.6% y-o-y to 9,960 units in Q1-Q3 2023, holiday home sales were down by 3.3% to 5,035 units over the same period.

Residential construction activity is also plummeting. Residential permits suffered a y-o-y fall of more than 39% in the first three quarters of 2023. Dwelling starts and completions also dropped 36% and 2.3%, respectively. As of September 2023, dwellings under construction plunged by 48.5% y-o-y to just 27,362 units, the lowest level in more than seven years.

Denmark’s housing market is expected to remain weak in the medium term, with Danmarks NationalBank projecting a cumulative house price fall of 3.2% in 2023. House prices are expected to increase by a minuscule 0.7% in 2024.

“Market expectations indicate that interest rates will drop only slightly over the coming years; as a result, interest rates, along with an expected contraction in employment, will continue to dampen house price growth. Single-family house prices are projected to drop 3.2 percent in 2023 and then grow 0.7 and 2.1 percent, respectively, in 2024 and 2025,” said Danmarks NationaBank in its Outlook for the Danish Economy report published in September 2023.

“New housing taxes will take effect on 1 January 2024. This will restore the effect of a key automatic stabilizer in the housing market, given that housing taxes will again rise and fall with house prices, which will dampen house price fluctuations. The housing tax reform will create a more uniform tax regime across geography and property types. Viewed in isolation, the new housing taxes are expected to translate into a small increase in house prices and a small price drop for owner-occupied flats, but they will help dampen price fluctuations going forward,” the central bank added.

Denmark’s economic growth is estimated to have slowed sharply in 2023, primarily due to weaker external demand, coupled with high inflation and tightening financial conditions. The International Monetary Fund (IMF) projected that the Danish economy grew by just 1.7% in 2023 while the European Commission released a gloomier outlook, projecting a miniscule growth of 1.2%. This is a sharp slowdown from real GDP growth rates of 6.8% in 2021 and 3.8% in 2022.

Regional house price variations

ADMB figures showed that local housing markets in most Danish regions remained depressed, amidst weak property demand.

By region:

  • In the Capital Region, i.e. Copenhagen and its hinterland, the average transaction price of owner-occupied flats increased slightly by 1.2% (but fell by 1% when adjusted for inflation) y-o-y to DKK 43,646 (€5,854) per square meter (sq. m.) in Q3 2023. This was a sharp slowdown from the y-o-y growth of 5% in Q2 2022 and 17.1% in Q2 2021.
  • In Southern Denmark, house prices fell by 9.8% (-11.7% inflation-adjusted) to an average of DKK 17,825 (€2,391) per sq. m. over the same period.
  • In Central Denmark, house prices dropped 2.2% (-4.3% inflation-adjusted) y-o-y to DKK 26,359 (€3,536) per sq. m. in Q3 2023.
  • In the Zealand region, transaction prices for owner-occupied flats rose by 2.4% (0.2% inflation-adjusted) y-o-y to an average of DKK 20,398 (€2,736) per sq. m. in Q3 2023 – an improvement from the prior year’s 1.7% price fall.
  • In North Jutland, house prices were up by a meager 1.1% (but fell by 1% when adjusted for inflation) y-o-y to an average of DKK 19,290 (€2,587) per sq. m. in Q3 2023.

Denmark Average Prices of Owner-Occupied Flats graph

A brief history of Denmark’s housing boom and bust

Denmark has been through several vigorous boom-bust cycles. From Q1 2003 to Q2 2007, the national average house price rose 75.4%, or 63.6% in real terms, based on figures from the Association of Danish Mortgage Banks (ADMB). Prices in the capital region rose by 88.3% (75.6% in real terms). Property prices peaked in Q2 2007.

Then from Q2 2007 to Q3 2009, property prices fell by about 15.4% (-19.3% in real terms) due to the global financial meltdown. In the capital region, the decline was 25.3% (-28.8% in real terms). The regions that experienced the highest price rises during the boom generally had the biggest price falls.

From Q3 2009 to Q3 2010 there was a short-lived recovery. But property prices fell again by about 9% from Q4 2010 to Q4 2012, due to the eurozone debt crisis.

The housing market has improved gradually since then, with house prices rising by 1.38% (0.71% in real terms) in 2013 and by 1.83% (1.35% in real terms) in 2014. The Danish housing market strengthened in the following years, thanks to robust demand fueled by negative interest rates.

Performance of the housing market since 2015:

  • 2015: house prices were up by 6.57% (6.17% in real terms)
  • 2016: up by 4.18% (3.8% in real terms)
  • 2017: up by 5.19% (3.88% in real terms)
  • 2018: up by 3.48% (2.67% in real terms)
  • 2019: up by 3.94% (3.24% in real terms)
  • 2020: up by 6.35% (5.87% in real terms)
  • 2021: up by 9.63% (6.28% in real terms)

However, the housing market started to slow in 2022. Nationwide house prices fell by 5.51% (-13.5% in real terms) y-o-y in 2022, as demand plummets due to rising interest rates and falling purchasing power of homebuyers caused by high inflation last year.

Demand remains weak

Property demand in Denmark remains weak in the first three quarters of 2023:

  • Detached/terrace houses: 29,127 units sold in Q1-Q3 2023, down slightly by 0.4% from a year earlier, according to the ADMB.
  • Owner-occupied flats: 9,960 units sold, up by 3.6% from the previous year.
  • Holiday homes: 5,035 units sold, down by 3.3% from a year earlier.

However, it is interesting to note that in the Capital Region, property transactions are increasing. Detached/terraced house sales rose strongly by 20% y-o-y to 6,593 units in the first three quarters of 2023. Likewise, sales of owner-occupied flats and holiday homes also increased by 10.3% to 6,425 units, and by 1.6% to 906 units, respectively.

During 2022, sales of one-family houses nationwide plunged by 30% to 46,120 units from a year earlier, following annual increases of 8.4% in 2021 and 17.1% in 2020, according to figures from Statistics Denmark. It was its first decline since 2011. Likewise, sales of owner-occupied flats plummeted by 35.3% y-o-y to just 14,604 units in 2022, in contrast to annual growth of 5.1% in 2021 and 13.8% in 2020.

Denmark Residential Property Sales graph

Time-on-market to sell a residence in Q3 2023:

  • Detached/terrace house average days-on-market stood at 132 days in Q3 2023, slightly down from 135 in the previous quarter but sharply up from 113 a year earlier, based on ADMB figures.
  • Owner-occupied flat average days-on-market was 97 in Q3 2023, down from 104 in the previous quarter but up from 88 in the same period last year.
  • Holiday home average days-on-market was 119 in Q3 2023, down from 123 in the previous quarter but up from 113 a year earlier.

Denmark Time on Market graph

Residential construction remains depressed

Residential construction activity started to plummet in 2020, due to coronavirus-related restrictions, and they haven’t recovered since. In the first nine months of 2023, all housing construction indicators showed a downward trend:

  • Residential construction permits fell sharply by 39.4% y-o-y to just 16,657 units in the first nine months of 2023, following annual declines of 23.8% in 2022, 4.1% in 2021, 4.4% in 2020, and 4.9% in 2019, according to Statistics Denmark.
  • Dwelling starts plunged by 36% to 16,819 units in Jan-Sep 2023 as compared to the same period in the prior year, following a huge decline of 38.5% during 2022, an increase of 7% in 2021 and another fall of 8.1% in 2020.
  • Dwelling completions fell slightly by 2.3% y-o-y to 27,268 units in the first nine months of 2023, after an annual growth of 9.1% in 2022, a fall of 4.9% in 2021, and increases of 11.8% in 2020 and 18.8% in 2019.
  • Dwellings under construction fell sharply by 48.5% y-o-y to just 27,362 units as of September 2023, the lowest level in more than seven years.

Denmark Residential Construction graph

Before the Covid-19 pandemic, construction activity had been rising strongly. Newly designated development areas have been built close to the center of Copenhagen.

  • Ørestad - Between the city center, the airport, and the Øresund Bridge, Ørestad is a new business and residential district measuring 3.1 million sq. m. The city’s main convention center, some of the region’s largest hotels, universities, and multinational corporations are located in Ørestad. It is now home to around 10,000 residents.
  • Carlsberg City District - Carlsberg, in the center of Copenhagen, has new houses, schools, and offices, mixed with historical buildings. Recent projects include Bohr’s Tower (88 apartments), Ottilia House (27 residences), and Jacobsen House (exclusive residences).
  • Nordhavn - Previously an industrial and commercial harbor, Nordhavn is being converted into a residential and commercial district. Schools, daycare centers, and sports facilities are also being developed.

Other parts of Copenhagen that experienced an upsurge in construction before the pandemic include the southern part of Copenhagen Harbour, the eastern area of Amager, and the southwestern part of the Capital.

In 2023, dwelling stock in Denmark reached 4.82 million, up by 0.9% from a year earlier, according to Statistics Denmark. About 48% of dwellings are owner-occupied while 51% are occupied by tenants.

South Denmark and Central Jutland accounted for about 25% share each of the total dwelling stock, followed by Zealand (18.8%), Capital (17.7%), and Northern Jutland (13.4%).

Denmark Dwelling Stock graph

Mortgage rates are rising rapidly

Mortgage interest rates in Denmark are noticeably increasing rapidly. Yet they remain one of the lowest in the world.

  • The short-term mortgage rate averaged 3.38% in the first 50 weeks of 2023, a sharp acceleration from just 0.90% in 2022 and from negative interest rates of -0.52% in 2021, -0.5% in 2020, -0.6% in 2019, -0.51% in 2018, -0.55% in 2017, -0.29% in 2016, and -0.16% in 2015, according to the ADMB.
  • The long-term mortgage rate averaged 4.77% in the first 50 weeks of 2023, up from 3.69% in 2022, 1.45% in 2021, 1.15% in 2020, 1.61% in 2019, 2.12% in 2018, 2.26% in 2017, 2.57% in 2016, and 2.77% in 2015.

Denmark Average Mortgage Rates graph

The Danish mortgage market is slowing

The size of the Danish mortgage market was equivalent to 108% of GDP in 2023, down from 110% in 2022, 120.6% in 2021, 126.9% in 2020, and from 133.1% in 2009. 

The total value of mortgage loans outstanding has risen by an average of 2.6% annually from 2009 to 2022, a sharp slowdown from an annual growth of 7.8% from 1998 to 2008. Then in 2023, mortgages outstanding had seen more or less zero growth.

In Q3 2023, total mortgage loans outstanding rose by a minuscule 0.4% y-o-y to DKK 3.12 trillion (€417.82 billion), according to the Association of Danish Mortgage Banks. Over the same period:

  • Fixed-rate mortgages loans: down by 7.5% y-o-y to DKK1.20 trillion (€160.1 billion)
  • Variable-rate mortgage loans: up 6% y-o-y to DKK1.92 trillion (€257.5 billion)

Denmark Mortgage Loans Outstanding graph

It seems that Danes are shifting back to variable-rate loans, amidst rising interest rates. In Q3 2023, variable-rate mortgages accounted for 61.6% of total loans, up from 58.3% in the same quarter last year.

Before the increase in interest rates, the share of variable-rate loans had been continuously falling. In 2021, variable-rate mortgages accounted for less than 53% of total loans – down from 57% in 2020, 60.5% in 2019, 64% in 2018, 65.6% in 2017, 66.7% in 2016, 68.2% in 2015, 72.1% in 2014, 72.6% in 2013 and 73.2% in 2012.

Denmark Arrears Percentage graph

Mortgage arrears remain low at 0.15% in Q2 2023, slightly up from 0.13% in the same period last year but down from 0.16% in 2020 and 0.24% in 2019, based on figures from ADMB.

However, the number of repossessed dwellings more than doubled to 74 units in the first three quarters of 2023, from just 35 units a year ago.

Denmark Reposessed Dwellings graph

High household debt risks are mitigated by high levels of savings and net worth

Danish households’ average personal debt is equivalent to 208% of net disposable income in 2022, one of the highest in the European Union, according to the Organisation for Economic Cooperation and Development (OECD). But this is sharply down from 248% in 2021, 258% in 2020, 293% in 2015, 306% in 2013, 320% in 2011, and 340% in 2009, and Denmark’s banking system remains well positioned and well capitalized.

Mortgage debt in the country accounts for about 80% of household debt.

“In Denmark, mortgage loans account for almost 80 percent of lending to households and businesses. The tightening of financial conditions is therefore especially passed through mortgage rates. Yields on both fixed-rate and variable-rate mortgage bonds have increased by more than 3.5 percentage points since the start of 2021,” said Danmarks NationalBank in its H1 2023 Financial Stability report.

While Danish households are considered to be one of the most indebted of EU and OECD countries, they also have the highest net worth – about 956% of net disposable income.

“Macro-financial stability risks derived from high-interest rates, given high levels of household indebtedness, are mitigated by a very strong aggregate household balance sheet (net financial wealth of 244% of GDP in 2Q23), high domestic savings, and Danish financial institutions´ strong capital buffers,” said Fitch Ratings in its November 2023 rating updated for Denmark.

Accordingly, Danish households have a very strong net asset position, with household net wealth close to 244% of GDP in Q2 2023.

Fitch Ratings notes that the country’s rising interest rates increase household debt costs and could heighten some vulnerabilities, as demand for variable-rate loans has increased in recent months. However, these risks to households’ debt serviceability are lessened by a high savings ratio and the benefit of tax deductibility of interest costs. Fitch Ratings also added that the banking sector remains strongly capitalized, with high liquidity and profitability, and Danish financial institutions have very high asset quality of their mortgage books.

Higher downpayment and amortization requirements recommended

Danmarks NationalBank has recommended the imposition of higher downpayment and amortization requirements for highly indebted homeowners to make the housing market more resilient.

“A general requirement for a larger down payment and a requirement of amortization on loans for homeowners with a high loan-to-value ratio are both measures that can contribute to a more resilient housing market,” said the central bank. “More stringent down payment and amortization requirement for highly indebted homeowners are also among the measures highlighted by the IMF to counteract increased risks in the housing market in Denmark.”

The central bank also warned that the widespread use of deferred amortization increases the vulnerabilities of homeowners to a fall in house prices. As such, it should be limited to the most resilient homeowners.

“Deferred amortization on mortgage loans may be a sensible choice if homeowners with a loan-to-value ratio above 80 percent use the deferred amortization period to reduce more expensive supplementary bank loans more quickly,” said the central bank. “In practice, however, a large part of homeowners with a loan-to-value ratio of 95 percent only partially use their deferred amortization for this purpose. This makes some homeowners with high indebtedness less resilient to a subsequent drop in housing prices.”

According to Danmarks NationalBank’s H1 2023 Financial Stability report, rising interest rates and high inflation are now starting to drain the resilience of homeowners. The central bank expects that about 36,000 more homeowners will have expenses that exceed their incomes in 2023. Yet these homeowners’ loans correspond to only just under 3% of the total housing debt, which limits the banking sector’s credit risks from homeowners with a budget deficit.

Effective January 1, 2018, banks have been limited from offering housing loans that do not have fixed interest rates or monthly installments. Moreover, mortgages available to households seeking to borrow more than four times their income, or more than 60% of the value of the property, are heavily restricted.

Rental yields are moderately good, despite a highly regulated market

Yields have recovered in Denmark in recent years, as rents have risen faster than house prices. Gross rental yields in the country averaged 4.16% in Q4 2023, according to research conducted by the Global Property Guide in December 2023. Unsurprisingly, smaller apartments offer higher rental yields.

In Q4 2023:

  • In Copenhagen, gross rental yields for residential properties ranged from 2.73% to 6.12%, with a city average of 4.16%.
  • In Aarhus, rental yields ranged from 2.87% to 5.51%, with a city average of 3.85%.
  • In Aalborg, rental yields ranged from 4.87% to 5.71%, with a city average of 5.31%.

Nevertheless, few new private rental dwellings are now being built, largely because the private rental market is strongly pro-tenant.

Only rental dwellings constructed after 1991 are exempt from rent control (less than 1% of dwelling stock, or about 10,000 to 15,000 units). Otherwise, rents are non-responsive to market forces because there are five different forms of rent control, depending upon the age of the building. There is also a huge social rental sector.

Further discouraging landlordism, owner-occupied dwellings receive generous benefits from the government. Aside from mortgage tax relief, houseowners are also entitled to a standard deduction for home maintenance. About 21% of households in Denmark receive housing subsidies from the government, the highest rate in the EU. Although there has been a slight decline in owner-occupancy in favor of social housing, this is due to the rise of single-person households.

Denmark is not open to foreign buyers

Despite Denmark’s liberal reputation, it is not easy to acquire property here.

Nonresidents may not purchase real property here unless the person:

  • Has previously resided in Denmark for at least five years;
  • Is an EU national working in Denmark; or,
  • If a non-EU national has a valid residence or business permit.

Even tighter restrictions on foreign ownership exist particularly for summer homes in coastal areas. These are popularly known as the ‘anti-German rules’; because they are designed to prevent coastal areas from being overrun by German second homeowners.

However, the purchase of “all-year-round” properties, which are not located in popular areas along the coast, is possible as long as you satisfy the aforementioned requirements.

Economic growth slows, inflation eases

Denmark’s economic growth is estimated to have slowed sharply in 2023, primarily due to weaker external demand, coupled with high inflation and tightening financial conditions. The International Monetary Fund (IMF) projected that the Danish economy grew by just 1.7% in 2023 while the European Commission released a gloomier outlook, projecting a miniscule growth of 1.2%.

“After several years of economic expansion Denmark has entered a period of subdued and narrowly based growth. Weak domestic demand, compounded by a sizeable negative change in inventories, is expected to contribute negatively to growth. In contrast, net exports remain a significant growth factor, leading real GDP to expand by 1.2% in 2023,” said the European Commission. “A gradual reacceleration of domestic demand and lower net exports are expected to lead to real GDP growth of 1.4% in 2024 and 1.6% in 2025.”

Denmark GDP Growth and Inflation graph

The Danish economy grew by 3.8% y-o-y in 2022, following a 6.8% growth in 2021 and a 2.4% contraction in 2020, mainly driven by strong base effects from high growth in 2021, robust net exports and the build-up of inventories, according to the EC.

Before the Covid-19 pandemic and the Ukraine crisis, the Danish economy has been expanding by an average of 2.7% annually from 2015 to 2019, up from an annual average growth of 1.2% in 2010-14.

Government finances remained fundamentally strong. As a percent of GDP, Denmark is expected to record a surplus equivalent to 2.6% in 2023, following surpluses of 3.3% in 2022, 4.1% in 2021, 0.4% in 2020 and another 4.1% in 2019.

Public debt is now back to its pre-pandemic level. The country’s government debt fell to about 29.8% of GDP in 2022, down from 36% in 2021, 42.3% in 2020, and 33.7% in 2019. The European Commission expects the public debt to increase slightly to about 30.3% of GDP in 2023 before falling again to 28.4% in 2024 and 27.2% in 2025.

“2023 will be the seventh consecutive year that the government balance is in surplus,” said Fitch Ratings. “Overall, the government estimates that the impact of fiscal policy on the economic cycle in 2024 will be broadly neutral, with the structural balance almost unchanged between 2023 and 2025.”

Inflation eased to just 0.6% in November 2023, sharply down from 8.9% a year earlier, according to figures from Statistics Denmark. It was the second lowest level seen since January 2021. Inflation is expected to slow to 3.6% in 2023 and to fall further to 2.4% in 2024, sharply down from the 40-year high of 8.5% recorded during 2022, according to the European Commission.

The labor market remains tight. Denmark’s seasonally-adjusted unemployment rate stood at 2.8% in November 2023, unchanged from the previous month but slightly up from 2.6% in the same period last year, according to figures released by Statistics Denmark. The jobless rate for men and women in Denmark stood at 2.7% and 3.0% respectively. Overall unemployment averaged 6.2% from 2010 to 2022.

Denmark Unemployment Rate graph

Sources: