Can House-Price Fluctuations be Dampened? - Part 2

Monetary review, 1st Quarter 2011

Authors Dam, Niels Arne; Hvolbøl, Tina Saaby; Sørensen, Peter Birch
Subject Danish Economy
Type Monetary Review  
Year 2011
Published 10 May 2011
This article describes how the large house-price fluctuations entail considerable costs to society. It is demonstrated that the freeze on nominal property value tax and the introduction of deferred-amortisation mortgage loans have amplified the general cyclical fluctuations in the Danish economy by causing larger fluctuations in the housing market. Restoring the link between the current property value tax and current house prices can contribute to more stable economic development and to preventing further erosion of public revenue. Gradually phasing out the use of deferred-amortisation loans would also enhance the stability of the housing market. These reforms can be implemented without any considerable short-term adverse effects on house prices.