Danish Housing Rally Needs No Intervention, Advisers Say

Danish authorities can hold off stepping in to halt the recent jump in house prices even as the development has sparked concerns from the central bank and the IMF, according to a fiscal policy watchdog.

Spurred by record stimulus measures to fight the pandemic, house prices have hit record levels in Denmark, which has the highest household indebtedness among rich nations. The central bank said last week risks are building for lenders, while the International Monetary Fund last month urged the Nordic nation to consider doing more to protect financial stability.

Still, the Danish Economic Councils, an advisory body also known as the Wise Men, said it’s too early to consider new measures to mitigate the risk of a housing market bubble.

“We agree that there is a need for sharpened attention, but do not yet assess that there is an urgent need for intervention,” Carl-Johan Dalgaard, chairman of the economic councils said in a statement. The annual housing costs as a percentage of income remain stable “at a relatively low level,” the advisers said.

In a comment on Tuesday, the central bank said “it would be due diligence to look at measures that reduce the vulnerability from large fluctuations in the housing market.” Measures such as higher down-payment requirements and amortization conditions for the most indebted homeowners “should be considered at this point.”

Housing prices rose 4.7% in 2020, according to government figures. This compares with an average 6.2%-gain among the OECD member countries. In its most recent forecast, the finance ministry said it expects prices to grow as much as 11.2% in 2021, citing low interest rates and a limited supply of homes.

The International Monetary Fund said in May Denmark’s debt-to-income ratio caps for all loans should be tightened, and all highly leveraged households should be required to pay back loan principal.

The Economic Councils’ Dalgaard admitted the current development mirrors that of the years leading up to the financial crisis. Denmark’s house prices plunged 5.2% in 2008 and another 12% in 2009, according to OECD data, while the rest of the Nordic region saw virtually no declines.

“However, the financial legislation has meanwhile been tightened in several areas and it is not obvious that further tightening is needed,” Dalgaard said. “But if the development continues, the need may arise.”

Read more: Danish Central Bank Says Risk Is Building in Housing Sector

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