An Empirical Investigation of a Potential Housing Bubble on the Danish Housing Market

Emil Helms & Jacqueline Juncker

Student thesis: Master thesis


The purpose of this thesis is to examine the existence of a housing bubble in Denmark. We apply a
fundamental value approach that estimates a statistical relationship between the fundamental values of house prices and actual house prices. The fundamental values are chosen by examining variables that have previously been found to explain changes in house prices. We apply national data from 1972 to 2016 and find that a regression model with ordinary least squares coefficients explain the development in house prices best. To asses if there currently is a housing bubble, we analyze the residuals between actual house prices and the house prices justified by fundamental values. We find that the fundamental values more than fully explain the current increase in house prices and conclude that there currently is no housing bubble in Denmark. We discuss the potential of a future housing bubble as some of the market characteristics today align with the proposed bubble criteria. We also discuss the potential of a housing bubble in Copenhagen. Prices in Copenhagen are found to have increased relatively more compared to other geographical areas. Based on the discussion, we conclude that the price increase observed in Copenhagen reflects an international trend due to urbanization and a change in demographics.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2017
Number of pages179