Bloomberg News

Norway Bubble Risk Is Overblown in Supply Squeeze, Solberg Says

May 21, 2012

Norway isn’t in the grip of a housing bubble and a shortage of supply in the property market will prevent prices from falling, said Erna Solberg, the leader of the Conservative Party and the front-runner to take over as prime minister in next year’s election.

“I argue against a housing bubble because a housing bubble is an influx of prices without demand; in Norway it’s demand that’s the biggest reason,” Solberg, 51, said yesterday in an interview in Oslo. “I don’t think house prices will fall.”

The comments signal a potential Conservative-led government won’t step in with measures to cool the housing market that the country’s financial regulator has warned is the biggest threat to the economy. Near-record low interest rates and falling unemployment boosted home prices about 27 percent since 2008, according to the Norwegian Real Estate Brokers Association.

Robert Shiller, the co-creator of the S&P/Case-Shiller home-price index who predicted the U.S. subprime mortgage crash, this year warned that Norwegian policy makers should “start worrying now” and that the market may be in a bubble. The Financial Supervisory Authority has warned that house prices may fall “markedly,” threatening “substantial” knock-on effects. The regulator introduced guidelines last year that limit mortgages to 85 percent of the value of the home.

Not Taxation

Norway’s central bank has emphasized that it is reluctant to widen the interest rate gap to Europe even as house prices have reached records while acknowledging last week that housing market developments and household debt may become a source of “instability in the Norwegian economy in the longer term.” Governor Oeystein Olsen said earlier this month that guiding house prices aren’t part of his mandate.

“There is a big problem connected to housing prices in Norway,” Solberg said. “The answer to that is not more taxation. If you want to decrease housing costs in Norway, the most important thing is to build more.”

Solberg, who has lead the Conservatives since 2004 and overseen a surge in support over the past six months, will lead the opposition against Prime Minister Jens Stoltenberg in the parliamentary elections in September 2013.

Backing for her party beat Stoltenberg’s Labor party in a May 12 Norfakta poll, securing 32.1 percent of the votes compared with Labor’s 29.5 percent. A survey for newspaper Aftenposten this month showed that 44 percent wanted Solberg to be prime minister, while 46 percent wanted Stoltenberg to continue.

More Houses

“The biggest issue for all governments the next 10 years is to build more public transport in the larger cities and cut down on planning processes for more houses,” Solberg said.

Solberg said a Conservative-led government will focus on cutting the wealth and inheritance taxes while seeking to add tax incentives for people to work longer. She would stick to a rule that limits spending of oil revenue to 4 percent of the nation’s $580 billion sovereign-wealth fund.

“We don’t have to cut pensions because the Norwegian economy is growing fast,” she said. “We’re not in the cutting business -- any Norwegian politicians now -- but it is a question of what you are using the growth for.”

The economy of the world’s seventh-largest oil exporter has steered clear of Europe’s sovereign-debt crisis. The government has no net debt and the biggest budget surplus of any AAA-rated nation, thanks to its sovereign-wealth fund.

The country’s mainland economy, which strips out the effect of oil, gas and shipping, will grow 3.25 percent this year, the central bank said March 14. That compares with a European Commission estimate for a 0.3 percent contraction in the 17- member euro region.

To contact the reporter on this story: Josiane Kremer in Oslo at jkremer4@bloomberg.net.

To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net;


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