The Danish Housing Market : Less Subsidy and more Flexibility

While Denmark has fairly flexible labour and product markets in most respects, the housing market stands out with large direct and indirect subsidies for all types of housing and a highly regulated rental market hindering mobility, probably resulting in a mismatch between housing needs and use. In the current housing policy framework there is quite a contrast between the well-functioning market for transactions of owner-occupied housing (supported by the highly liberalised mortgage market) and the highly regulated rental housing market. This paper assess the recent development in Danish house prices, followed by a discussion of ways of replacing the costly government intervention in the Danish housing market with more market-based mechanisms, thereby achieving policy objectives in a more efficient and targeted way. The paper reviews the main areas for reform, including overall subsidisation of housing, rent regulation, social housing, and how housing supply could be made more responsive.