New research project will teach us how to handle increasing house prices

By: Asbjørn Mølgaard Sørensen I Foto: CBS

If you are a homeowner or have been looking to be one in Denmark recently, you have probably already noticed. 

Danish house prices have generally gone up by 18 per cent over the past two years. In addition, Danish households have the highest debt in relation to their income compared to all the OECD countries. In other words, it is expensive to buy a house in Denmark, and we borrow a lot of money. For this reason, we depend on a stable market – individually and as a society. 

The problem is, however, that policymakers do not agree on which measures actually work when the housing market suddenly gets out of hand. But this is where Kathrin Schlafmann, Assistant Professor at the Department of Finance at CBS, comes into the picture. She has recently been given one of the prominent Sapere Aude grants of DKK 6.2m for her project ‘Households and the Housing Market’. Here she tells us about the project in her own words:

What will you spend the grant money on investigating?

The combination of higher house prices and bigger loans for Danish households has policymakers worried about the stability of the housing market. Yet, there is no consensus on which policies and measures will ensure stability. And this is owing to a fundamental problem when it comes to the housing market: Research is lagging behind the policymakers. This project will combine empirical analyses of the effects of past housing market developments with theoretical modelling. This will allow us to evaluate which forces drive the house prices and how regulation of housing and mortgage markets will affect house prices, the indebtedness of households and the stability of the economy. 

Why is this important to investigate?

I expect the project findings to be directly relevant to the policymakers who are to decide when and how we influence housing market developments. The housing market has great impact on the individual homeowner and economy stability as a whole, which is why it is crucial for decision makers to have access to well-founded scientific research when making these important decisions. The aim of the project is to gain new insight into the housing market and help decision makers make informed decisions.

How did you become interested in this research field?

I became interested in the field of household finance and particularly housing because this field is directly relevant to everyone. Buying a house is the most important purchase most people will ever make, and since it is so expensive, most people have to finance it by running up debts. This has long-term impact on their financial situation throughout life. Additionally, we learned from the financial crisis in 2008 that housing and mortgage market developments are crucial for the stability of the economy. This combination of importance to the individual household as well as the global economy fascinates me. 

For this project, the Independent Research Fund Denmark has awarded Kathrin Schlafmann the Sapere Aude grant of DKK 6,181,632. 

Sapere Aude means ‘Dare to know’ and the grants are for particularly talented young researchers who can lead more participants in a research project at a high international level.