What is the impact of reform packages on the real estate market?

Homeowners alert

The financial crisis and the nosedive of the housing prices have resulted in massive attention from the press, the politicians and the public. The question is how different financial reforms will affect the development of the housing prices. A new project aims to provide an answer by testing possible reform scenarios based on different financial models.

Any possible development initiatives in the real estate market make the homeowners alert and read the many newspaper headlines carefully. New reforms - or no reforms at all - can have profound implications for the price development on the Danish real estate market in the future. But how is the real estate market affected by the possible reform scenarios that are debated publicly at the moment?

Are the politicians' arguments based on solid theoretical grounds?

A new project is trying to answer that question. In collaboration with the Knowledge Centre for Housing Economics affiliated with the strategic foundation Realdania, the Centre for Economic and Business Research at CBS are testing two different reform processes based on the two financial models, ADAM and DREAM. Besides testing the two processes, they are also asking the question: Is it at all possible to compare the reforms based on the two financial models?

Asked about the project perspectives, Project Manager and Senior Analyst Rasmus Højbjerg Jacobsen from the Centre for Economic and Business Research says:

- If the two types of models, ADAM and DREAM, provide the same results, it may with some justice be said that the calculations on the real estate markets carry some weight. If the results, however, are different both in terms of quality and quantity, it is evident that the politicians cannot base their arguments on solid grounds. But it is important to bear in mind that calculations are not actual predictions or forecasts of how the housing prices are going to develop. They are technical impact analyses of political reform packages that makes most sense when they are compared to each other, says Rasmus Højbjerg Jacobsen.

Take no action or implement reforms

The possible reform scenarios can basically be divided into two things: You take no action, or you introduce an actual reform process that includes a further retirement reform for the labour market, a tax reform and green investment. If it is chosen to take no action, there will still be uncertainty about the future for the Danish economy and the real estate market.  And is 'status quo' a sustainable policy in the long run? Or is Denmark going to pay the price - an increased interest spread compared to other countries?

The Danes' most important financial asset

Rasmus Højbjerg Jacobsen thinks that the real estate market is both interesting and exciting, because the price trend in the area is important to a lot of Danes.

- The real estate market is unique, because it affects so many people. It is by far the most important financial asset among the Danish population, which is why the future prospects for the real estate markets mean a lot to a significant amount of people. The real estate market is therefore a central area with respect to the model forecasts we are studying, says Rasmus Højbjerg Jacobsen.

The aim of the project is a report, which will be published in June 2012.

Read more about the Centre for Economic and Business Research (CEBR).