Oslo Real Estate market convergence: a convergence analysis of Oslo’s real estate market between 1987-2015

Abstract

This paper has tested for beta-convergence in real estate prices between Oslo’s boroughs in the time period 1987-2015, and investigated which price determinants that affect price movements between regions. Both a graphical approach inspired by Baumol (1986), and a cross-region regression method has been used. The study shows clear indications of absolute convergence in periods with declining real estate prices, and absolute divergence in periods with increasing real estate prices. This paper finds no evidence of long-term absolute convergence or divergence. Oslo’s real estate market can be broken down into three convergence groups based on structural differences and price movements. The first group consists of the inner boroughs, the second group consists of the outer west boroughs and Nordstrand, and the third group consists of the outer east boroughs. The most important factors for price movements in the short run are migration and debt gearing. In the long run, structural differences such as: unemployment rates, education level, and geographical placements, appear to be the most important factors. New construction appears to be the highest in areas with high growth, or areas with potential for high price growth. Two boroughs with potential for future high growth in real estate prices based on the evaluation of this paper are, Gamle Oslo and Nordstrand.