EXPLAINED: What’s behind Copenhagen’s skyrocketing property prices?

When the Covid-19 pandemic first struck, Birgit Daetz, director of communications at Danish property portal Boligsiden.dk, said they and other experts expected a large decrease in housing sales. 

“What happened was the exact opposite,” Daetz said. Initially, there was an increase in summer home purchases, resulting from limited international travel. “Later on, the housing and apartment market joined the boom.”

The rise in prices has been particularly steep in Copenhagen, which has seen the supply of housing for sale drop by half from May 2019 to May 2021. Meanwhile, sales prices in Copenhagen Municipality and Frederiksberg have increased 28 percent, according to Boligsiden’s data.

“Although we’ve seen high prices in the innermost part of the capital for quite some time, now this development has spread to municipalities further away from central Copenhagen and expanded to detached houses,” Curt Liliegreen, director of the Housing Economics Knowledge Center (Boligøknomisk Videncenter), said.

Within Copenhagen, Nordhavn saw both the largest decrease in housing for sale (71 percent) while also seeing the largest price increase (37 percent) from May 2019 to May 2021. Indre By had among the smallest reductions in supply (21 percent) and Frederiksberg, the smallest price increase (20 percent).

“The pandemic has stimulated demand with many people wanting more space, but it’s also suppressing supply because many people want to stay in their house,” Liliegreen said. A recent survey performed by the Centre found that 40 percent of respondents have searched for housing in the past three months, the highest number the Centre has ever recorded.

Although people are “not necessarily moving out of Copenhagen as you might see in London or U.S. cities,” Liliegreen said, “a lot of people are moving from a small flat to a bigger flat and from a flat to a house.” 

In total, he said, Copenhagen only had a net loss of around 3,400 residents in 2020, with the departure of 61,400 and the addition of 58,000 residents.

How has this impacted the rental market?

The trend toward more spacious housing can also be seen in the rental market, said Thomas Hornbæk, chief marketing officer at the housing search platform BoligPortal.dk. Although they initially saw a shift away from apartment searches within city centres during the first few months of the pandemic, search trends have since returned “almost back to normal.”

Hornbæk has noticed interest in three- and four-room apartments is up. “With people spending more time at home, they’re willing to invest more in their living space, both in terms of inventory and space,” he said.

One of the main ways the pandemic has changed BoligPortal’s operations is the influx of properties previously listed on short-term rental sites like AirBNB. 

“Instead of renting out apartments on AirBNB, people are looking for longer-term tenants,” Hornbæk said. “That’s now part of the housing inventory available for residents.”

“Another factor stimulating the difference in supply and demand is that new construction is down in Copenhagen,” Liliegreen said, adding that not as many apartments were completed in 2020 and 2021 as in years past. 

“Though, I think that’s a temporary thing because there are many major housing projects anticipated in Copenhagen,” Liliegreen said.

What can we expect in the near- and long-term future?

Denmark’s housing market hasn’t faced such a gap between supply and demand since the Danish property bubble in the early 2000s. According to a report from Bloomberg news, the following correction of the market was painful as housing prices fell, resulting in a selloff and price slump.

“There is fear that the market could collapse once the pandemic is under control, interest rates rise, and people return to normal levels of interest in the housing market,” Liliegreen said. “That’s why this conversation is raging now in Danish media.” 

Although price control discussions are underway, it seems the market is beginning to normalise on its own. Boligsiden data shows that more houses have been put up for sale than have been sold in the past two months.

“The decline in the number of trades in recent months is an indication that the unusually high activity in the housing market is slowing down,” Daetz, from Boligsiden.dk said. “The housing trade is still well above normal, but we are approaching a more natural state.”

The increased supply hasn’t yet resulted in falling sales prices, but Daetz expects prices to stagnate or even fall during the remainder of 2021.

Liliegreen also expects prices to decline, adding that he’s already seen some asking price reductions in Copenhagen’s most expensive areas. 

“Realtors might have put prices up too high, and might now want to sell before any potential political changes in the market,” Liliegreen said. “I think we have seen the worst of these price increases.”