With renewed sales activity and recovering price growth at the beginning of the year, the Danish housing market is now more optimistic, although new development remains challenged by the effects of elevated interest rates and inflation in the previous periods.

This extended overview from the Global Property Guide covers key aspects of the Danish housing market and takes a closer look at its most recent developments and long-term trends.

Table of Contents:

• Housing Market Snapshot
• Historic Perspective
• Demand Highlights
• Supply Highlights
• Rental Market
• Mortgage Market
• Socio-Economic Context

Housing Market Snapshot

Residential property prices in Denmark show signs of recovery after experiencing a significant decline in mid-2023, when the House Price Index recorded a year-on-year drop of 6.16% (9.38% inflation-adjusted), as reported by Statistics Denmark. Since then, the market has started to rebound, with the index registering its first year-on-year growth of 1.3% (0.3% inflation-adjusted) over the past four quarters in Q1 2024.

"We currently have a housing market that is performing well and is in better shape than many had anticipated," stated Birgit Daetz, housing economist and communications director at property website Boligsiden, in a June press release. Daetz attributed this positive trend to the stable financial situation of many Danish households, driven by high employment rates, salary increases aligned with inflation, and healthy savings levels, as well as recent interest rate cuts by the Danish Central Bank (Danmarks Nationalbank, Nationalbanken). "Given favorable market fundamentals, we expect the house prices to increase further in the coming period," she added. Echoing this sentiment, the May 2024 Economic Survey from the Ministry of Economic Affairs projected country-wide house prices to rise by 3.2% in 2024 and 3.0% in 2025.

Denmark's house price annual change:

This positive dynamic was observed across all residential property segments. Data from the Association of Danish Mortgage Banks (Finans Danmark) revealed that the average price per square meter for completed transactions of detached and terraced houses nationwide reached DKK 16,105 (USD 2,345) in Q1 2024, reflecting a 2.72% year-on-year increase. Owner-occupied flats saw a price rise of 4.11% to DKK 16,105 (USD 2,345), while holiday homes averaged DKK 21,185 (USD 3,085), marking a 3.48% year-on-year increase.

Data Source: Finans Danmark.

Regional performance varied, particularly in the owner-occupied flat segment, which was notably affected by the recent tax reform. Southern and Central Denmark experienced year-on-year declines of 1.24% and 2.22%, respectively, while Zealand recorded the highest increase at 7.50%, followed by the Capital Region with a 6.00% rise, and North Jutland with a 2.11% growth.

"The apartment market has recently surprised us, especially considering the significant property tax increases, which were expected to cause price declines," said Birgit Daetz of Boligsiden. "However, in the last few months, we have seen both increased trades and rising prices for apartments. The relatively low supply also plays a role, as there appears to be strong demand for the limited number of apartments on the market," she added.

Regional price dynamic, per square meter prices of completed transactions, Q1 2024:

Despite uncertainties related to monetary policy and newly introduced changes in housing taxes, residential sales remained robust, with a notable year-on-year increase in transactions reported across all key segments in Q1 2024 (15.12% for detached and terraced houses, 7.07% for holiday homes, and 4.31% for owner-occupied flats).

At the same time, the Danish residential construction sector showed a decline in activity due to the considerable strain both private developers and public housing organizations have been under during the period of elevated interest rates and high inflation. During the first half of 2024, new residential unit completions fell by 34.12% year-on-year, while the issuance of housing permits dropped by 38.51% year-on-year, raising concerns among experts about potential future housing shortages, particularly in the nation's largest cities

Strict regulations under the Danish law kept the growth of the rental market restrained, with the Housing Rent Index increasing by only 6.7% for all housing and 6.9% for privately owned housing in the three-year period between Q2 2021 and Q2 2024. According to the research carried out by the Global Property Guide in July 2024, gross rental yields for residential units in the country averaged 3.99 %, 0.93 points down from 4.45 % previously reported in January 2024.

Reflecting the slow decrease in interest rates on new mortgages, residential lending activity in Denmark remained subdued. The total value of outstanding mortgage loans showed only a marginal 0.6% year-on-year growth in 2023. In the first seven months of 2024, DKK 149.3 billion (USD 21.5 billion) in new mortgages to households was provided, a volume of 11.3% and 58.6% below the respective 2023 and 2022 levels.

The overall outlook for the Danish economy is positive, with inflation stabilization and growth at close to its potential expected over the forecast horizon.

Historic Perspective:

Housing Cycles in Line with Global Patterns

The early 2000s were characterized by a significant housing boom for the Danish residential property market, with house prices increasing rapidly due to low interest rates, economic growth, and favorable credit conditions. By the end of 2004, nominal house prices rose by 14.1% year-on-year, accelerating to 26.3% in 2005. This boom was accompanied by high levels of construction, with nearly 34,000 new housing units started in 2005 alone.

However, this period of rapid growth began to cool down in 2007, when house prices stagnated, marking the peak of the boom. The global financial crisis of 2008 then triggered a severe downturn. House prices fell sharply, with a nominal decline of 11.1% year-on-year in 2008 and a further 4.8% drop in 2009. Inflation-adjusted, these declines were even steeper. The crisis also led to a significant reduction in construction activity, as credit tightened, and consumer confidence waned. By 2009, only 11,155 new housing units were started, down from 35,546 in 2006.

The years following the crisis were marked by a slow and uneven recovery. While 2010 saw a brief rebound with a 2.6% nominal increase in house prices, the market dipped again in 2011. It wasn't until 2013 that the market began to recover more consistently. Low interest rates, introduced by the Nationalbanken to stimulate the economy, played a crucial role. Between 2013 and 2019, house prices increased steadily each year, and construction activity also picked up. By 2019, the number of new housing units had reached 40,964, reflecting renewed confidence in the market.

The onset of the COVID-19 pandemic in 2020 initially raised fears of another downturn. However, the market defied expectations, with nominal house prices increasing by 7.2% year-on-year in 2020 and 11.3% in 2021. This surge was driven by historically low interest rates, a shift in housing demand as people sought more space during lockdowns, and government stimulus measures. Construction activity also remained robust during this period, with a peak of 43,508 units started in 2021.

Despite this strong performance, the market began to show signs of cooling down by 2022. Rising interest rates, driven by global inflationary pressures and tighter monetary policies, started to dampen demand. Nominal house prices grew by just 0.7% year-on-year in 2022, and when adjusted for inflation, they actually declined by 7.8%. In 2023, house prices decreased nominally by 0.9%, with a further inflation-adjusted decline. Construction activity also began to slow, with only 15,973 new housing units started in 2023, demonstrating a sharp drop compared to the previous year.

20-year annual house price change (based on end-of-year house price index and consumer price index):

20-year construction activity dynamic (started and completed housing units):

Data Source: Statistics Denmark.

Demand Highlights:

Sales See Strong Start to 2024 Amid Policy Uncertainties

Demand in Denmark's residential market has remained robust despite uncertainties surrounding monetary policy and regulatory changes in early 2024. The Association of Danish Mortgage Banks (Finans Danmark) reported a notable year-on-year increase in transactions across key segments in the first quarter, with sales of detached and terraced houses rising by 15.12%, holiday homes by 7.07%, and owner-occupied flats by 4.31%.

However, quarter-on-quarter comparisons reveal a more nuanced picture. While the segment of the detached and terraced house maintained its positive momentum with a 3.40% increase, sales of owner-occupied flats and holiday homes declined by 13.01% and 3.84%, respectively. This downturn is largely attributed to the new housing tax reform implemented on January 1, 2024, which led many buyers to expedite their purchases before the end of 2023 to secure the permanent tax discount available under the previous rules.

Birgit Daetz, housing economist and communications director at property website Boligsiden, noted the market's cautious start, stating: "2024 began with several unknown factors impacting the housing market. There was uncertainty about interest rates, particularly regarding the timing and extent of potential rate reductions. Additionally, the new housing tax changes introduced uncertainties about their impact on the market."

Data Source: Finans Danmark.

Regionally, the demand for detached and terraced houses was strongest in Southern Denmark, which accounted for 25% of total transactions in this segment, followed by Central Denmark (24%) and the Capital Region (21%). Southern Denmark also led with an 18.0% year-on-year growth in the number of transactions registered. In the owner-occupied flats segment, the Capital Region dominated, accounting for 64% of transactions, while Southern Denmark saw the highest growth rate in this segment, at 15.2% year-on-year.

Looking forward, the outlook for housing demand in Denmark remains positive. Birgit Daetz of Boligsiden Daetz remarked: "As we move further into 2024, there is growing optimism in the housing market. Interest rates have decreased, and the anticipated negative impact of the new housing taxes on prices has not materialized. Combined with the strong financial position of many Danish households, we expect solid sales results for the rest of the year."

Supply Highlights:

Optimism Grows for 2025 Despite Current Construction Slowdown

The Danish residential construction sector has experienced a marked decline, as evidenced by recent data from Statistics Denmark. During the first half of 2024, just over 13,000 new residential units were completed, reflecting a 34.12% decrease compared to the same period in 2023. Additionally, the issuance of housing permits dropped by 38.51% year-on-year, while the number of new construction starts plummeted by 50.83%.

Jesper Malm, Head of Communication and Policy at the Danish Association of Construction Clients (Bygherreforeningen), commented on the challenging environment facing developers: "Both private property developers and public housing organizations have been under considerable strain. The price hikes in 2023 followed by interest rates increases led to financial difficulties, including bankruptcies within the industry. The after-effects can still be felt in 2024 with numerous housing construction projects being postponed, awaiting more favorable conditions."

Data Source: Statistics Denmark.

The decline in construction activity has been observed across all regions of Denmark, raising concerns among experts about potential future housing shortages, particularly in the nation's largest cities. Analysis by the construction industry news platform Dagens Byggeri indicates that the Municipality of Copenhagen would need to construct over 16,000 new homes by 2030 to meet projected population growth. Similarly, Aarhus requires the development of approximately 10,500 new homes, and Aalborg needs 5,500 by the same year. The current downturn could thus negatively impact the pace of deliveries and hinder these targets.

Regional residential construction dynamic, H1 2024:

Despite these current challenges, Rasmus Schulian, an analyst for information company Byggefakta, offers a cautiously optimistic outlook. While he does not foresee significant changes in the conditions for new housing construction in 2024, he notes that "interest rates and construction costs remain considerably higher than pre-2022 levels. However, there is still a substantial number of projects in the pipeline for 2024, which suggests an uptick in activity compared to 2023. Although the overall level of housing construction will be lower than in recent years, it is far from a standstill."

At the same time, the Ministry of Economic Affairs projects that as monetary policy eases and construction costs stabilize, real growth in gross investment in housing construction will gradually improve, from -10.2% in 2023 to -1.5% in 2024, with a positive growth forecast of 2.4% in 2025.

Rental Market:

Growth in Rents and Yields Limited by Market Regulations

Recent data from Statistics Denmark shows that as of 2024, only 57% of Danish households own their homes, while 43% are renters. Ane Arnth Jensen, Deputy Managing Director of Finans Danmark, explains that although many Danes aspire to own homes, a significant portion of the population prefers renting for various reasons. Young people, in particular, often struggle to afford their first home in major cities and may prefer the flexibility that renting provides. Additionally, some choose to rent to avoid the responsibilities that come with homeownership.

A new analysis from Finans Danmark sheds light on the financial factors behind these choices. It found that in 45 of the country's 98 municipalities, the cost of living in an average owner-occupied home is higher than renting a comparable property. "In larger cities and many areas of Zealand, renting is typically more affordable than owning a home," Jensen explains. "This is largely due to high housing prices that outpace the relatively lower rents available in both private and public rental markets."

Data Source: Statistics Denmark.

As under Danish law rents charged to tenants are strictly regulated, the growth in the Housing Rent Index has been restrained even during periods of high inflation. Statistics Denmark reports a 6.7% increase in rents for all housing in the three-year period between Q2 2021 and Q2 2024. During the same time, rents in privately owned housing grew slightly faster, showing a 6.9% increase over three years. In terms of regional diversity, the highest growth rate was observed in the Capital Region (7.3% for all housing and 8.8% for private housing in three years), while North Jutland demonstrated the slowest growth (5.7% for both all housing and private housing in three years).

According to the research carried out by the Global Property Guide in July 2024, gross rental yields for residential units in Denmark averaged 3.99 %, 0.93 percentage points down from 4.45 % previously reported in January 2024. Regional performance varied, with the highest yields of 4.95% registered in Aalborg, followed by Aarhus (3.76%) and Copenhagen (3.26%).

Average gross rental yields by submarket:

Mortgage Market:

Further Slowdown in Residential Lending

Following the European Central Bank (ECB) decision in June 2024, the Nationalbanken also sanctioned cuts to its key interest rates: current account and discount were lowered from 3.6% to 3.35%, and lending was lowered from 3.75% to 3.5%.

In line with the policy rates trend, after peaking at 5.49% in August 2023, the average interest rate on new mortgages to households in the country has been on a downward trajectory in the last year, most recently registering at 4.66% in July 2024 - 0.22 p.p. down since January and 0.77 p.p. down since the same period last year, however still far from reaching pre-2022 baseline of below 2%. At the same time, the average interest rate on outstanding mortgages to households remains elevated at 3.53% in July 2024 against 3.11% a year ago and 1.77% two years ago, according to the Nationalbanken data.

Interest rates on domestic mortgage loans to households:

Data Source: Nationalbanken.

Experts from Nordea, one of the country's leading mortgage providers, forecast further decreases in interest rates in 2024 and 2025, which are expected to be more pronounced for short-term loans with only slight falls in rates for long-term loans.

Despite the decreasing interest rate trend, residential lending activity in Denmark remains subdued. The Nationalbanken reported DKK 149.3 billion (USD 21.5 billion) in new mortgages to households provided in the first seven months of 2024, which is 11.3% and 58.6% below the comparable 2023 and 2022 levels, respectively. The total number of loan offers issued by mortgage banks during this period was 85,356, 18.3% lower than a year ago and 55.7% lower than two years ago, according to the data from the Association of Danish Mortgage Banks (Finans Denmark).

In addition to mortgages, DKK 54.2 billion (USD 7.8 billion) in other loans to households for house purchases were issued by commercial banks in the first seven months of 2024, the indicator also showing a notable decline compared to previous periods (19% below the 2023 level and 15.9% below the 2022 level).

Note: Other domestic sectors include non-financial corporations and non-profit institutions serving households.
Data Source: Nationalbanken, Finans Danmark.

In general, according to the Eurostat figures, 47.2% of Danish households are homeowners who have an outstanding mortgage or loan on the property.

The total value of outstanding mortgage loans remains stable, showing a marginal 0.6% year-on-year growth in 2023 (compared to an average annual expansion of 3.3% in the previous 5 years) and reaching DKK 3.1 trillion (USD 448 billion) by July 2024. Represented as a percentage of GDP, outstanding mortgages dropped from 124.1% in 2020 to 109.8% in 2023.

Loans to households consistently make up the largest share of outstanding mortgages (64% as of July 2024), however, the nominal value of this segment has declined for the second year in a row (-1.7% year-on-year in 2023 and -1.3% year-on-year in 2022), compared to an average annual expansion of over 2.8% between 2017 and 2021.

According to the Nationalbanken July 2024 figures, 55.7% of total loans maintained by the Danish mortgage banks were issued on owner-occupied homes and summer cottages and 15.7% on private rental properties, the remaining share split between other types of properties, such as offices, industrial and agricultural properties, undeveloped plots, and social housing. For the household segment, owner-occupied homes and summer cottages make up 86.8% of outstanding loans, while private rental properties make up 1.9%.

Note: Other domestic sectors include financial and non-financial corporations, non-profit institutions serving households, and general government.
Data Source: Nationalbanken, Statistics Denmark.

Socio-Economic Context:

Inflation Stabilization and Slower-Paced Growth Projected

After a post-pandemic 6.8% rebound in 2021 and a moderate 2.7% growth in 2022, Denmark's real GDP growth slowed down to 1.8% in 2023. The dynamic was driven by strong industrial production, specifically in the pharmaceutical sector. According to the European Commission analysis, expansion in this sector was particularly strong in late 2023, implying that the economy entered 2024 with a strong carry-over supporting solid growth for the year as a whole.

The positive growth outlook is set to continue in 2025 when lower interest rates and stable inflation are projected to underpin growth and employment. Overall, real GDP is forecast by the European Commission to grow by 2.6% in 2024 before easing to a rate of 1.4% in 2025. This is in line with the International Monetary Fund (IMF) forecast expecting 2.1% and 1.5% growth in 2024 and 2025, respectively.

Nationwide inflation, measured by the Consumer Price Index (CPI), has been easing, reaching 1.1% year-on-year in July 2024, down from 3.1% a year ago in July 2023 and 8.7% in July 2022, according to the Statistics Denmark data. The European Commission expects a slight increase in the rate throughout the year to post 2% in 2024, before stabilization at an annual average of 1.9% in 2025. Lower food prices are set to contribute to these low inflation rates, while services inflation could remain elevated, reflecting increases in wage costs.

Data Source: IMF.

Denmark maintains robust public finances. The country has been showing a budget surplus for several years in a row, most recently recorded at 3.1% of GDP in 2023, the highest level in the EU. This trend is likely to continue, however, more subdued economic activity in 2024 is expected to imply higher social transfers and slightly lower tax revenue, which, combined with higher public investment, notably military expenditures, are projected to reduce the general government surplus to 2.4% of GDP in 2024 and 1.4% in 2025.

Denmark has also maintained a gross debt ratio under the European Union's target threshold of 60% of GDP for over 20 years now. As reported by Statistics Denmark, the country's gross public debt in 2023 sat at 29.3% of GDP, down from 29.8% the previous year and 36% two years ago. The European Commission forecasts the indicator to decrease further to 26.5% in 2024 and 25.1% in 2025.

The country's labor market continues to benefit from the economic expansion over the past years. The increased demand for labor has been met in part by the influx of migrant workers and higher average retirement ages, according to the European Commission assessment. Most recently reported by Statistics Denmark at 5.3% in July 2024, the ILO unemployment rate is still low, although slowly increasing since mid-2022. The European Commission expects the indicator to increase to 5.6% in 2024 and 6.1% in 2025.

Data Source: Statistics Denmark.

Overall, the Danish economy is seen as wealthy and high-value-added. In May 2024, Fitch Ratings affirmed the country's AAA standing, saying that Denmark's "credible economic policy framework, sound public finances, and strong external metrics underpin a record of macro-economic, fiscal, and financial stability." In its analysis, the agency notes that the country's macro-financial stability risks derived from higher interest rates are mitigated by a very strong household balance sheet, high domestic savings, and Danish financial institutions' strong capital buffers.

Sources:

1. Statistics Denmark
   1. Residents: https://www.dst.dk/
   2. Construction Activity: https://www.dst.dk/
   3. Sales of Real Property: https://www.dst.dk/
   4. Rent Indices: https://www.dst.dk/
   5. Key Figures for the National Accounts (GDP): https://www.dst.dk/
   6. Labor Force Survey (LFS): https://www.dst.dk/
   7. Consumer Price Index: https://www.dst.dk/
   8. EMU debt and EMU balance: https://www.dst.dk/
2. Danmarks Nationalbank (Nationalbanken)
   1. Official Interest Rates: https://www.nationalbanken.dk/
   2. Banking and Mortgage Lending: https://www.nationalbanken.dk/
   3. Lending Rules in Light of Higher Interest Rates: https://www.nationalbanken.dk/
3. Danish Tax Agency
   1. Housing Taxes from 2024 (DK): https://skat.dk/
4. Ministry of Economic Affairs, Denmark
   1. Economic Survey, May 2024: https://en.oem.dk/
5. Association of Danish Mortgage Banks (Finans Denmark)
   1. Housing Statistics: https://finansdanmark.dk/
   2. In more and more municipalities, it has become more expensive to own than to rent a home (DK): https://finansdanmark.dk/
6. Eurostat
   1. Distribution of Population by Tenure Status, Type of Household, and Income Group - EU-SILC Survey: https://ec.europa.eu/
7. Danish Association of Construction Clients (Bygherreforeningen)
   1. Record year on the way in construction - housing construction is still having a hard time (DK): https://bygherreforeningen.dk/
8. Fitch Ratings:
   1. Fitch Affirms Denmark at 'AAA'; Outlook Stable: https://www.fitchratings.com/
9. Colliers:
   1. Renting is Now Cheaper Than Buying a Home in Danish Cities: https://www.colliers.com/
10. Boligsiden
    1. New price figures: House prices rose again in May (DK): https://www.boligsiden.dk/
    2. New trading figures: Housing sales picked up in the second quarter of the year (DK): https://www.boligsiden.dk/
11. The Economist
    1. To Fix Broken Mortgage Markets, Look to Denmark: https://www.economist.com/
12. Reuters
    1. Denmark Ends Nearly Decade-Long Era of Negative Interest Rates: https://www.reuters.com/
13. Nordea Bank
    1. New Interest Rate Forecast from Nordea (DK): https://nytfranordea.nordea.dk/
14. Dagens Bygger
    1. A decline in housing construction will lead to an increased housing shortage in 2030 (DK): https://dagensbyggeri.dk/
    2. After a significant decline in housing construction: Still many projects in the pipeline for 2024 (DK): https://dagensbyggeri.dk/