Thursday, February 20, 2014

Population Growth Falling

In April 2013 I wrote about the net migration and it's effect on Norwegian home prices. I have mentioned earlier that there is a strong belief in Norway that not enough new homes are built to meet the demand for housing. This argument is used so often in media that it has more or less become "conventional wisdom". The underlying forecasts of high future demand are mainly based on assumption of continuing high net migration.

Steinar Juel from Nordea Bank is among the few who have questioned this conventional wisdom. In a report from Oct'13 (in Norwegian), he takes up the rising amount of homes for sale as one indicator of a supply that meets the demand, and also points, like I did, to the volatile net migration.

Per Jæger of the homebuilders' assocation Boligprodusentene is pointing to yearly population growth of around 60 000 to 70 000, of which around 70 % has been due to net migration, and says that we should be building around 38 000 homes per year (and again adds that "it's illogical to think that home prices will fall"). Here he naturally needs to make an assumption on the household size. While the average size of a household in Norway is 2,2 persons, it is clear that migrants with lower income live in bigger households. Chris McDonald of Reserve Bank of New Zealand has found in his study that one additional house is build for around every six migrants in New Zealand. The actual number doesn't need to be even close to this high to make the assumptions of homebuilders questionable.

But that's not all. Today we got a report on population trends in 2013 from Statistics Norway and here's the updated "hockey stick":

SSB writes:

The population growth was 1.1 per cent in 2013, which is the smallest percentage growth in Norway since 2006. Net migration from abroad decreased by 7 200 from 2012 to 2013 - down from 47 300 to 40 100, and this is the lowest since 2009.

The implications of lower population growth on housing demand can be significant. There is an impact both directly and indirectly (through lower demand for rental units) on the amount of home buyers in the market. Polish and Lithuanian citizens are the  two largest groups of immigrants. Many of these occupy jobs related to construction and home repairs/maintenance. As the housing starts started to fall only in the end of 2013 (down 17,5 % year-on-year in Q4'13 and a whopping 37 % in Jan'14!), we don't yet see the real effect of a most likely negative job growth in the construction sector in the migration statistics. If the new home sales and housing starts don't improve soon, there will be little doubt about which direction the population growth will go in 2014.

It might be that 2014 will be remembered as the year when the big story of housing deficit (boligmangel) was finally buried?


  1. Have you watched Keen's talk to Statistics Norway? Toward the end he talks about the Norwegian Real Estate situation. I think you might find it interesting.

    1. Thanks, Ben! Interesting stuff. Am I correct if I say that what Keen is doing is closely related to what Adair Turner is talking about? Here are links to his "landmark" speeches:

    2. Stockholm speech:

    3. This one from Bill White, who Keen praises on the video, is also interesting reading:

    4. If you know any other sources similar to these, please share. I'm very enthusiastic about the subject of debt and trying to learn continuously more. Turner points to further reading in his speeches, like Wicksell whom I'm turning to soon. I'm reading also David Graeber's "Debt" to get another angle to debt :)

  2. I am actually trying to do my PhD on the very subject, so I do have a couple of references for you (although you do seem quite well read on it, judging by previous links). The BIS have done a series of very interesting papers on the subject, such as this one:
    Or, more famously, this:

    They are all very well grounded in data and adopt a perspective shared by most PKs nowadays. Their implicit theoretical models seem very close to the ones described by Palley in his works (summed up here:

  3. Thanks, Ben! Any way I could get in touch with you? I'd like to hear more about your project. If you're open to the idea, you can write your contact details in a comment which I'll delete without publishing it.

  4. Huple's Cat,
    Here's a study which explores a link between rapid population growth and housing bubbles. growth and housing bubble.pdf

    The study was actually by a Norwegian.

    Conclusion of that study was that rapid population growth actually facilitates the growth of housing bubble.

    In the post below go to the very end where I made few graphs to demonstrate the link between population growth and housing bubbles.

  5. Hi, I have been missing your posts for a while! I found your blog to be some of the more thoughtful analysis of the seemingly ongoing housing bubble in Norway, and would really love to hear some updated thoughts on the subject. If you don't feel you have anything coherent enough to post here, I would love to receive them in private!


  6. The fresh population growth number that by first look seemed like an upturn from the 2. quarter in 2014 and also seemed like a slight increase compared with the 3. quarter 2013 was affected by a change in the registration procedures for emigration. This is explained by Statistic Norway.

    The population growth of 18.772, an increase of 272 people compared to the 3. quarter 2013. However, both imigration and birth surplus declined from the 3. quarter, while the emigration decreased by over 20%, which is "interesting" since the emigration number have increased yearly since early 2000-ish.

    If we assume that the same number emigrated from Norway as it did in the 3. quarter 2013, the numbers tell a different story with a quartery growth in population of just below 16.500. This is actually the weakest growth in the 3. quarter since 2006. If mt interpretation of the growth number is correct it is just another sing of the reversal in population growth. Do you agree with my reading of the numbers?

    It is also quite "interesting" the contributors in the debate, such as Eiendom Norge and Prognosesenteret, regardless of the fact that the population growth is almost 10% lower than the Statistic Norway estimate published in June 2012 still claims that the demand for housing equals 38.000 units/year. In other words; the are ignoring the facts that Statistics Norway have reduced their estimate and that the real population growth is even lower than that.

    The deviation is probably not that large - so far. We must remember that the fall in the oil price and the following cut in investments just started a fw moths ago. However, this are "last years numbers". It usually take at least 2 quarters, but probably more like 3-4 quarters untill we see the full direct and secondary effects of the cuts and the decline in the population growth have in my opinon probably just started.

    If the oil price stay at approx. the current level we will after a while see a rapid decline in population growth and wage increase. I would not be surprised if we within a couple of years see a growth less than 40.000/year and that is not a fixed minimum level.

    I am actually not sure if we have a propery bubble in Norway. I would regard it more as an overall economic bubble.


    1. Thanks, MickyD ;-)

      Well, it seems anyway for the moment that the population growth is holding up at last year's level? Which was of course lower than 2012. But like you say, the emigration data is always tricky, as there are many people who fail to report when they move out. Some of these, at least earlier, have also received some payments from the Norwegian government - child allowance, for example - while already out of Norway, so there might have been an incentive not to report. I doubt it's a big number of people, though.

      What strikes me today is how the "national narrative" has changed very fast during the autumn. Oil is out, and we have to find other sources of wealth. Next year will be very interesting!

      I think a property bubble and an overall economic bubble go often hand in hand. Which one causes the other? It's a spiral, two-way causality, right? Rising property prices heat up the economy (through higher collateral value and "wealth effect" -induced spending and property-related jobs) and, mainly through higher wages, this gives a further lift to property prices. Of course one can argue that it has been an oil price bubble that ignited all of this. So, I agree, it looks like an overall economic bubble - with a property bubble.