Match and Mismatch between Supply and Demand in the Norwegian Housing Market

Abstract

This thesis examines the mismatch between supply and demand in the Norwegian housing market and its role in driving sustained increases in housing prices from 2004 to 2024. The research focuses on the interaction between structural rigidities, price drivers, and market dynamics. Key supply-side factors, such as construction costs, completed dwellings and building permits for homes, are analyzed alongside demand-side influences like interest rates, disposable income, population growth, and unemployment.The present thesis employs econometrics, including the Hodrick-Prescott filter (HP-filter), to disentangle long-term trends from short-term fluctuations. Data from Statistics Norway and Eiendom Norge provide the basis for identifying market trends and cyclical patterns. Findings reveal that mismatches are most pronounced during economic expansions, where demand growth outpaces the slow adjustment of housing supply. Conversely, during downturns, mismatches decrease as demand falls, yet prices often remain volatile due to speculative behavior and consumer confidence shifts. The assumed that, urban centers exhibit greater price rigidity and slower supply responses compared to smaller cities is confirmed in the thesis. These results underscore the asymmetric nature of supply-demand interactions and the role of behavioral factors in amplifying market imbalances.