Rising rents and falling house prices: What's going on in Oslo's property market?
The real estate market in Oslo is going through interesting times – house values are falling while rental prices are increasing. Why is that the case?
The interest rate spikes of 2022 have made it more expensive to take out loans, and the results of this policy, coupled with the overall financial squeeze felt by Norwegian households throughout the country, are finally showing results – home prices are falling in a number of cities in Norway, including Oslo.
However, at the same time, increased labour immigration, population growth, the increased number of refugees, fewer second homes being rented out on the market, and falling purchasing power are leading to increased demand for rental housing, which is driving up rental prices in the capital, according to the Utleiemegleren rental agency.
In December, it cost an average of 11,004 kroner to rent a one-room apartment in Oslo. Compared to last year, that is an increase of 5.3 percent. On the other hand, a two-bedroom apartment cost 14,822 kroner on average (an increase of 8.9 percent compared to last year), while the cost of renting a three-room apartment in December increased by 9.4 percent compared to last year to a total of 18,097 kroner.
Plenty of rental demand
There has been a great demand for the smallest apartments, and tenants seem to prefer two-bedroom apartments in central areas of the capital.
The Utleiemegleren rental agency noted that it has also registered an increasing demand for large family homes.
Furthermore, it said that there seems to be a trend of more migrant workers looking for housing, especially family homes linked to international schools.
Previously, Henning Lauridsen, CEO of Real Estate Norway, told the public broadcaster that NRK that a growing population and increased immigration would lead to higher demand in the rental market overall in the coming years.
Future outlook for rental prices in Oslo
Rental prices in Oslo are expected to continue rising in the coming years, according to Geir Skogheim, managing director at Utleiemegleren, .
Last week, the Norwegian Real Estate Agent's Association pointed out that increased property tax and rising interest rates were behind the significant drop in second homes being available on the rental market. A lack of second homes generally means less homes for rent on the market.
Despite the current lack of second homes on the market, which are typically offered out for rent by landlords, the Utleiemegleren agency believes the number of such homes in Oslo will increase moving forward. The agency noted that, so far in January, it had gotten more inquiries from owners considering renting out housing rather than selling.
"We expect a positive trend when it comes to the number of second homes in Oslo after the equity requirements for the purchase of a second home were changed from 40 percent to 15 percent.
"We are experiencing that more investors are looking towards Oslo again. This will help alleviate a pressured rental market which is currently characterised by demand surpassing supply," Siri Anne Bernum Halck, a regional manager at Utleiemegleren, noted.
Still, there are no quick fixes to the challenge of rising rent prices in Oslo, and most of the aforementioned factors pushing rental prices up (immigration, population growth, weakened purchasing power, limited rental housing) will likely stay in place throughout most of 2023.
Why are home prices falling, while rent prices soar?
A combination of interest rate increases and inflation have slowed the growth of house prices in Norway in recent months. After rising by around 20 percent during the pandemic, house prices are expected to fall throughout 2023.
Late last year, Real Estate Norway forecast that home prices in Norway are likely to fall around 3.5 percent nationally this year.
The organisation believes house prices in the capital will see much more significant falls, of approximately six percent, in 2023 - but doesn't expect the slump to last in the long term.
“Higher interest rates hit Oslo harder than other cities due to high prices and debt levels. We, therefore, expect house prices to fall somewhat here during the first half of the year. In the longer term, Oslo has a housing deficit measured against population growth. This means that we expect prices to rise again in the longer term in Oslo,” Lauridsen from Real Estate Norway said previously.
The latest figures show that house prices in Norway have fallen every month since September 2022.