Fears Housing Figures Could Lead to Prolonged Interest Rate Hikes

Eiendom Norge, a Norwegian real estate industry group, contends that Norges Bank is using an inaccurate basis for its interest rate decisions by relying on Statistics Norway's (SSB) inflation calculations for housing costs. The group argues that since 80 percent of Norwegians own homes, high rental prices can distort the perception of overall housing cost inflation, potentially leading to interest rates remaining higher for longer.

Henning Lauridsen, CEO of Eiendom Norge, expressed concern that this method provides a skewed picture of housing expenses. He explained that SSB's calculation is based on hypothetical rental costs for homeowners. "This can lead to a situation where the housing costs for owners flatten out, while rental prices continue to increase quite sharply. Then the use of rental prices will give a false impression of housing costs," Lauridsen stated, adding that the risk is significant in the current market.

Lauridsen believes this misrepresentation of housing costs contributes to an inflated view of overall inflation, making the task of lowering interest rates more difficult and protracted for Norges Bank. He advocates for changing the data foundation upon which the central bank bases its interest rate policies.

However, Kjersti Haugland, Chief Economist at DNB Carnegie, strongly disagrees with Eiendom Norge's criticism. "I am absolutely not in agreement with that criticism," she told E24. Haugland argued that housing costs, over time, do not significantly contribute to higher inflation, regardless of whether rental price components are included. She suggested that interest rates themselves can help reduce housing costs by lowering inflation.

Haugland also pointed out that rental prices in existing lease agreements can only be adjusted according to general price increases. She questioned the practice of removing certain components from the Consumer Price Index (CPI) and noted that SSB's methodology for calculating housing rent differs from Eiendom Norge's analysis, as SSB considers existing contracts alongside new rental prices.