Asuntokupla : Finland, Sweden and Denmark

Scandinavian property markets have enjoyed explosive growth over the last decade. Since 1995, property prices have climbed by an average of 12% in Denmark and by nearly 8% (per year) in Finland and Sweden.

Between 1995 and 2007, prices soared by nearly 300% in Denmark and by approximately 150% in Sweden and Finland. This trend coincided with a steady increase in residential investment which accelerated in tandem with the economic upturn that started showing through from 2004 onwards.

As a result, the construction sector’s contribution to economic growth in Scandinavia – both directly, in terms of increased demand via residential investment, and indirectly, though higher employment – has been massive, especially since 2004.

Furthermore, it would appear that what will probably prove to be a hard landing for the Scandinavian property market is already underway. Structural indicators are in negative territory, in contrast to the situation in 2000-2002 when the economic slowdown was short lived.


Scandinavian households had substantial recourse to credit in order to buy their own homes. Apart from the downward blip between 2001 and 2002, growth rates in lending to households have exceeded 10% over the last ten years. The trend was underpinned by historically low levels of interest rates in 2003/2005.

Household indebtedness topped the levels recorded before the late 1980s crisis: almost 250% of gross disposable income in Denmark and 150% in Sweden. Borrowing on this scale now looks unsustainable. As a result of monetary tightening – the process took place somewhat late in the day: i.e. in 2005 - interest charges rose (rates on home loans stood at 5% in most Scandinavian countries in January 2008 vs. 3% to 3.50% in 2005).

This not only increased the cost of new loans but also pushed up the cost of honouring existing debts as an extremely high percentage of home loans had been taken out at variable rates: 40% in, Sweden and Denmark and 90% in Finland.

This problem has recently been compounded by the current financial crisis which has led to an increase in bank financing costs and, by the same token, to tougher lending conditions.

A close watch needs to be kept on the indicator that measures growth in home loans. This indicator rose to an all-time high in the first quarter of 2006 but has since been retreating slowly. On a short term view, a more substantial loss of momentum is to be expected.


Residential construction market trends leave no doubt that the housing market has started to run out of steam. Housing starts (compound 12-month figures) fell by 30% and 37% yoy respectively in Q2 and Q3 in Denmark, by 9% in Q2 in Finland and by 34% in Q4 in Sweden.

The end of government measures to support the construction industry in these countries does much to explain the sharp downward swing.

That said, the underlying trend is equally discouraging. The reversal of trend is well underway in Denmark and Finland. The movement is particularly palpable in Denmark where the tide has been turning since the second quarter of 2007: prices tumbled by 5.1% and 8.7% respectively in Q2 and Q3.

Although prices are still rising in Finland, the pace slowed from 7% to 5% yoy between the first and fourth quarters of 2007.

The property market recession in prospect will have significant implications for Scandinavian economies as a whole. Firstly, the percentage of GDP accounted for by residential investment has risen sharply since the mid-1990s, notably in Finland and in Denmark.

This means that the contraction of household residential investment will have a direct negative impact on growth. The signs have already started filtering though: in the second half of 2007, residential investment fell by 1.8% and 1% respectively in Denmark and Finland. From this year onwards, all three countries are likely to be affected.

Secondly, the impact on the job market will be considerable. In Denmark, the percentage of total employment accounted for by the construction sector rose from 4.8% to 5.9% between 1996 and
2006. Moreover, this sector was responsible for almost 20% of job creations over the same period. The trend was similar in Sweden and Finland: the construction sector accounted for more than 15% of job creations between 1996 and 2006).

As Denmark’s property market is the most vulnerable, the correction in this country is likely to be the most severe. Finland and, to an even greater extent, Sweden are less at risk but are nonetheless on course for a property market recession.