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PROPERTY

Why has the cost of renting in Oslo increased so much?

Oslo is the most expensive city in Norway to rent, and several factors mean the cost of being a tenant in the capital has soared in recent years.

Published: 25 March 2024 16:21 CET
Oslo 1
How did the rent situation get this strained in Oslo? What's driving the upward trend, and is there any chance it will slow down in the short-to-mid term? Photo by Stock Birken on Unsplash

Rental prices in Oslo have surged by 30 percent over the past three years, according to figures from Finn Eiendom, the property section of Norway’s largest online marketplace, Finn.no.

As of January this year, the average monthly rent for an apartment in the capital was 17,900 kroner, up 3,500 kroner from 14,400 kroner in 2021.

READ MORE: Where in Norway have rents increased the most?

Similar trends of rapid rent growth have been seen across major Norwegian cities. Nationwide, there are between 10,000 and 15,000 too few rental properties available for rent. 

Rising demand and limited supply

Oslo’s population has been boosted by both natural population growth and immigration. This has outpaced the rate of new housing being built.

The city’s allure as an economic hub – it is the capital, after all – has attracted droves of residents, placing immense pressure on the rental market.

Kjetil J. Olsen, the managing director of the rental agency Husleie.no, said in press release earlier this year that the increasing population, coupled with a near standstill in housing construction, has contributed to surging rents.

On top of that, students moving to Oslo from all over the country to study, as well as the inflow of Ukrainian refugees to the capital, have both driven up demand.

The issue is expected to become more challenging as summer approaches and students who can’t secure student housing start looking at the private market.

This surge in demand clashes with a limited supply of available housing units.

Despite some efforts to incentivise construction, bureaucratic hurdles and zoning restrictions continue to impede developers, leading to a shortfall in available properties.

READ MORE: Could looser regulations combat rising rents in Norway?

Oslo building

Regulatory obstacles, like zoning restrictions and financial constraints such as the high cost of construction materials, slow down housing development in Oslo. Photo by Ditte Yven on Unsplash

Regulatory constraints

Regulatory measures play a pivotal role in shaping Oslo’s rental landscape – and the strict regulations governing property development are a significant hurdle in terms of growing supply.

Most real estate industry experts agree that zoning restrictions and taxes on second homes drive up rent prices, as they restrict supply and result in stagnant construction.

Zoning restrictions limit the areas where new construction can occur, while policies such as increased taxes on second homes, dissuade property owners from entering the rental market or prompt them to sell existing properties, further constraining supply.

Furthermore, Oslo also struggles with a critical shortage of small apartments, which is particularly problematic for young renters and students.

READ MORE: Thousands of small apartments are needed in Oslo to address housing shortage

Restrictive city policies, including bans on constructing apartments below a certain size, exacerbate the issue.

As a result, people seeking affordable accommodation are forced to contend with higher rents for larger units or seek alternatives which aren’t centrally located.

Interest rates, inflation, and stagnation in housing construction

Rising interest rates and high inflation have also driven up the cost of renting in the Norwegian capital.

Increased overheads, driven by mortgage repayments and tax liabilities, mean landlords pass on these expenses to tenants.

Therefore, as wages fail to keep pace with a rising cost of living, tenants face mounting pressure to allocate more of their earnings toward housing expenses.

So, despite the pressing need for affordable housing, a lack of new construction projects (which is unlikely to go away anytime soon) perpetuates the scarcity of available properties.

At the same time, regulatory hurdles, financial constraints (such as the high cost of construction materials), and zoning restrictions all contribute to the sluggish pace of housing development.

The urgency for implementing measures to address the housing crisis through policy reforms and investment incentives has reached an unprecedented level, and renters are understandably concerned.

However, regrettably, industry experts in the real estate sector agree that minimal relief can be anticipated in the short and medium term within Norway’s major cities.

Projections indicate that prices will continue to climb even higher by the year’s end, and several industry organisations, such as Real Estate Norway (Eiendom Norge) have expressed concerns.

READ MORE: Why the cost of renting in Norway will continue rising sharply

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PROPERTY

What first-time buyers in Norway need to know about the current property market

Norway’s property market has outpaced expectations this year. From what will happen to prices and whether the lending regulations will change, here’s what potential buyers need to know.

Published: 12 September 2024 13:55 CEST
What first-time buyers in Norway need to know about the current property market

By August 2024, the average cost of a home in Norway had risen to 4.75 million kroner. So far, house prices in Norway have risen by 8.3 percent.

However, thanks to wage rises this year, “real house prices” (which account for wage growth and other things) are at a similar level to 2017, interest organisation Real Estate Norway (Eiendom Norge) has said.

People are rushing to buy homes

Norway’s property market moves fast, but things have been especially fast-paced recently, according to estate agents.

In August 2024, it took an average of 42 days to sell a home. Furthermore, Real Estate Norway said that August saw more home sales than it had ever recorded in that month before.

Meanwhile, Martin Kiligitto, managing director at Nordvik Bolig, has told The Local that he expects the high activity to continue.

According to Carl O. Geving, the managing director of the Norwegian Association of Real Estate Agents (NEF), rising wages are one factor behind this trend. Salaries in Norway have started to rise following years of stagnation and high inflation.

READ MORE: House hunters in Norway rush to buy homes before price rises

The market is hotting up ahead of interest rate increases

Norway’s central bank brought the key policy rate to its peak at the end of last year, and cuts are expected to arrive in 2025.

Many who had been waiting on the sidelines to see whether rates would be raised further have now entered the market ahead of the cuts.

“Many potential buyers who have been waiting for a reduction in interest rates are now acting, likely driven by the expectation that prices will rise once the Central Bank of Norway announces a rate cut, which is anticipated in the first half of 2025,” Kiligitto said.

Prices are likely to continue rising over the next two years as mortgages become more affordable.

The second-hand market will be particularly tight

Norway hasn’t built enough houses to meet demand in recent years. Furthermore, increasing material costs and high interest rates have made new builds expensive.

These two factors have bottlenecked buyers into the second-hand home market.

“There is still a problem with the construction market and the sale of new homes. It is still expensive to build new homes, so there’s mainly heavy pressure on the market for used homes,” Geving told The Local recently.

He said the problem was biggest in Norway, where there was a large demand for small flats. Given how long it takes to build properties, this issue was likely to drag on for the foreseeable future. 

It appears as if lending rules will not change

In recent months, there has been speculation that Norway could loosen its lending regulations as the Finance Ministry was set to decide on new rules at the end of the year.

Among the predicted changes were tweaks to the equity required to buy a home. Currently, a minimum of 15 percent is required – although some banks ask for more from foreign customers.

The Financial Supervisory Authority of Norway, which supervises banks and other financial institutions, has appeared to scupper those hopes by saying that it would continue the current lending regulations in Norway.

This means that the deposit rate of 15 percent will continue, as will the borrowers being restricted to loans of five times their income minus any existing debts. Mortgage applicants will also have their finances tested against potential interest rate increases of three percentage points.

READ ALSO: What foreign residents in Norway need to know to get a mortgage

A lack of changes to the lending regulations has been criticised by Henning Lauridsen, the CEO of Eiendom Norge.

“Instead, the regulation has contributed to greater inequality in society and made vulnerable households even more vulnerable,” Lauridsen recently told business broadsheet Dagens Næringsliv (DN).

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