Targeted financing would not solve housing crisis – research

Helping the younger generations buy their first homes would not have its desired effect of easing access to the housing market, new research from the National Bank of Denmark shows.

The paper’s authors analyse three suggestions to help with home purchases: the first would allow pension savings to be used as down payments; the second would lower pension contributions to increase disposable income; and the third would create mechanisms whereby homebuyers’ own funds would be combined with third-party financing.

The researchers argue that all three suggestions would make the housing crisis worse as they would not solve the core issue of inadequate supply. This would “worsen purchasing opportunities and access to the housing market for younger households” and increase debt. At the same time, existing homeowners would gain from seeing house prices rise.

Targeted financing for younger first-time homebuyers would give them an immediate advantage, the researchers say. However, other buyers would be forced to purchase less expensive properties or abandon their plans altogether.

The authors say that although young people are usually the most financially constrained demographic, they are also more likely to be able to purchase more expensive homes then their elders.

The researchers calculate that if the rules around using pensions for down payments had been relaxed in 2022 the median home purchase price in the country’s most popular municipalities – Aarhus, Odense and Aalborg – would have gone from Dkr2.9 million ($408,000) to Dkr3.6 million. Outside these three locations, the median purchase price would have risen from Dkr1.7 million to Dkr2.9 million.

Regardless of which of the three suggestions was implemented, “very few” new younger households would end up being able to afford a home, the researchers find.