Supply Factor Analysis of the Norwegian Housing Market : How do Supply Factors in the Property Market Affect House Prices in the Short Run?

Abstract

The purpose of this thesis is to examine whether supply factors in the property market affect house prices in the short run. By applying time-series regressions, we examine how changes in supply factors affect housing prices for several Norwegian cities and study the differences during the time period of 1993-2020. Previous research primarily focuses on the demand as a determinant for the Norwegian Housing prices, while this paper emphasizes the supply side. Firstly, relevant theory for the supply and demand mechanisms are presented, which serve as a foundation for our estimated model and analysis. Furthermore, we study the historical development of the Norwegian housing market and the regulatory environment. We find that construction cost, housing initiations, interest rate, and housing completions affect housing prices in the short run. Additionally, housing initiations are found to be affected by construction costs, prices, and interest rates. Furthermore, we find regional differences between the Norwegian cities. Contrary to other cities, Oslo is less sensitive to factors which are unrelated to financings, such as housing completions and construction costs. The housing market in Oslo seems to be affected by an unresponsive housing supply compared to Trondheim and Bergen. We believe that the reason is the lack of dwelling approval for residential purposes. Overall, we find evidence that housing supply factors affect prices in the short run.