The “medicine” for the housing market is the opposite of what many believe.
With one year left until the election, it is frightening to hear that some red-green politicians are talking about increased taxes on housing and an even tighter framework for people who want to enter the housing market.
The recipe will make it more difficult to buy your own home.
Here’s why:
- This year, 20,000 new homes will be built alone, or 2/3 of the housing construction in 2016. So too little is invested in new homes.
- Housing rent is at a record low and is below two percent. With such a low interest rate, it should be easier to get a loan, not more difficult.
A fall in house prices has been predicted again and again in the last 20 years. But the historical experience is that house prices have risen and that it has been much more profitable to own than to rent.
In addition, banks barely lost money on private mortgage customers even in times of crisis in the late 1980s and during the financial crisis.
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The new housing debate started with an analysis from the left-wing think tank Agenda, and has been followed up by the AUF leader. The problem to be solved is that young and low-wage earners are pushed out of the housing market, and the solution is to increase the tax on housing and remove interest deductions.
For me, it is a mystery how it will be easier to buy a home when the state is to take another shot at the ability to pay (increased tax, smaller interest deduction). Money that could have been used to pay loans and interest must thus end up in the treasury.
It’s a bit like a standard solution where the answer is increased taxes, no matter what the problem is.
But it is not just on the left that stricter regulations are wanted. In his leadership position, Aftenposten wrote yesterday that the so-called mortgage regulations should be tightened again. In practice, this means that one will raise the threshold for entering the housing market by depriving banks of the opportunity to exercise discretion (or use banking skills).
Right now, the regulations say that banks can lend you a maximum of 85 percent of the purchase price. A new home buyer must therefore obtain 15 percent from another source – or 450,000 kroner for an apartment for three million kroner. For many, a mortgage at less than two percent interest is supplemented by a consumer loan at 15 percent interest.
In this case, the 85 per cent mortgage costs NOK 51,000 in the year before tax, while the 15 per cent consumer loan costs NOK 67,500.
Had the young home buyer been able to borrow up to two per cent interest, the interest costs after tax would have fallen from NOK 92,430 to NOK 46,800.
What does this mean?
Yes, that in an excessive fear that home buyers will become possible losers on a future home stool, the same people are pushed into the rental market as secure financial losers right away.
At the end of March, Minister of Finance Jan Tore Sanner eased the regulations a bit by allowing banks to use discretion in up to 20 per cent of loan cases, compared with 10 per cent previously (eight per cent in Oslo). This change should be extended, so that the banks can provide loans to graduates and people in secure jobs who will apparently have a more spacious economy eventually.
The seas: Temporarily increased flexibility in the mortgage regulations
Young people are not helped into the housing market by closing the door on them.
It is about as illogical to drive hard on people who invest in housing, where the prescription is increased taxes and reduced interest deductions apparently to bring down the level of investment.
The solution is actually the opposite: It must be more attractive to invest in new homes. If we say that the average price for a new home is five million kroner, it will be built for 100 billion kroner this year. Someone has to invest this money for the homes to be built.
And if we are to rise to the level from 2016, more than 50 billion more will be needed for newly built homes. New statistics from homebuilders are that we have the lowest start-up of new homes since 2010, and that Oslo, for example, is building about half of the need.
Is there anyone who is surprised that prices are rising?
And does anyone think that there will be more homes by making it less attractive to invest money in more homes?
HOUSING PRICES: History so far has taught us that it is profitable to own a home, and even less profitable to rent.
The left believes that house prices fall when purchasing power is taken out of the market, by the state collecting taxes. In the best / worst case, a fall in house prices is achieved which destroys the wealth of current homeowners, and the price of second-hand homes falls.
The problem is that at the same time it will make it less tempting to build new homes. Partly because they become more expensive to finance loans, but also because profits will fall since construction prices are constantly rising (if you do not reduce the wages of construction workers).
A frequently used story is that a single nurse can only afford three percent of the homes in Oslo. The index has been prepared by Eiendom Norge, and the latter assumes that at the beginning of 2019, the average nurse’s salary was supplemented by around NOK 550,000.
Since the banks can only lend five times the income, the bank cannot lend the single nurse more than NOK 2.55 million, according to Eiendom Norge.
The seas: The Norwegian Nurses Index 2019
How relevant it is to measure the entire housing market against such a special group as single nurses can be discussed.
Eiendom Norge believes that the single nurse can spend NOK 225,000 a year on servicing loans, and that seems reasonable.
But then it is assumed that the nurse must withstand an interest rate of 7.5 percent (“stress test”). It is extremely conservative when the key policy rate is zero and most people believe in low interest rates for a long, long time to come.
Or as Norges Bank’s Monetary Policy Committee puts it: “As the committee now assesses the outlook and the risk picture, the key policy rate will most likely remain at the current level for some time to come.”
THE RULES DESTROY: This is the math behind the so-called nurse index. It shows that it is not what the nurses can afford that applies, but what rules have been made to exclude them from the loan market.
The calculation of Eiendom Norge shows that it is the limit of five times income that excludes the nurse, since the person in question can only borrow NOK 2.55 million. The so-called stress test of withstanding an interest rate increase of five percent forms a new ceiling of NOK 2.7 million, but none of these say anything about what the nurse has money for.
For the effects of the regulations are something completely different than what the nurse can de facto afford.
If we say that a single nurse can spend NOK 225,000 a year on the mortgage, and choose 30 years of repayment, then the conclusion will be completely different when the market interest rate is below two percent as today.
If we use Sbanken’s interest rate calculator, the nurse can afford to borrow NOK 5.3 million!
BETTER ADVICE: According to the interest rate calculator, a single nurse manages to service a loan of NOK 5.3 million at the current interest rate.
Photo: Sbanken.no
If you think this seems risky to the bank, then security will quickly improve. After five years, the outstanding debt is down to NOK 4.6 million, and the borrower can withstand a price drop of 15 per cent without either the sole nurse or the bank losing five øre on a forced sale.
In addition, time works for the nurse and the bank. IN the recent market report to Norges Bank It is estimated that house prices will fall slightly this year and next year, but then increase significantly in 2022 and 2023. If the estimate is correct, the home to NOK 5.3 million will have increased to NOK 5.6 million in the same period – and the single nurse will be a millionaire.
Right now, there are 1,233 homes for sale in Oslo for less than NOK 5.3 million, so if it had been up to the market, the single nurse would have been able to afford to pick and choose. The nurse index does not show what the borrower can afford, but what limit the banks must operate with in order to grant loans.
conclusion:
- It is the regulations that mean that single nurses can only buy three percent of the homes in Oslo.
- The last thing this group needs is even stricter regulations that keep them out of the housing market.
That is why it is so dangerous to prescribe the wrong medicine that kills the patient.
After all, it is better to invest in a good opportunity to own a home and get a million fortune, than a certain financial loss as a tenant.
PS! What do you mean? Is it right to demand that home buyers must withstand an interest rate of 7.5 percent, or could the market be released more freely? Write a reader letter!
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