Ripple Effects in House Prices in the Norwegian Market: A Study on a Regional and Metropolitan Level

Tobias Johan Angell Uteng & Nicolai Moltubak Løken

Student thesis: Master thesis


When seen in an international perspective, the Norwegian housing market is characterized by a high proportion of homeowners. The Development of house prices consequently has a large economical and societal impact. Norway has several distinctive features that may affect the housing market, among these are a varied industrial structure, large distances, and low population density. Previous empirical research indicates the presence of ripple effects in regional or metropolitan housing markets in several countries. This study is the first to provide an insight into ripple effects on a regional and metropolitan level for the Norwegian housing market. This thesis applies quarterly real prices for 13 selected regions and the ten largest metropolitan areas from 1992 to 2017, considering the apartment and detached house markets. Similar to other scientific studies of the ripple effect, we apply a framework consisting of Johansen test for co-integration, a corresponding alpha coefficient test to identify the adjusting areas and Toda-Yamamoto Granger Causality test for short-term relations. Finally, we perform an Impulse Response Analysis to simulate the responsiveness of each area. The results show, in accordance with international studies, that the metropolitan area of Oslo, the main economic center of the country, is one of the epicenter of the ripple effect on the regional and metropolitan housing markets. The effects are mostly evident on the apartment market, possibly a result of Oslo’s housing market primarily consisting of apartment transactions. Stavanger/Sandnes, which is heavily associated with the oil sector, is also acting as an initiator of the ripple effect but not to the same extent as Oslo. In sum, we have found that Oslo and Stavanger/Sandnes operates as two epicenters of the ripple effect with strongest effects within their respective parts of the country. There are indications that economic structural differences limit how strong the effect is between each area and Agder/Kristiansand in the southern part is acting as an intermediary. Trondheim tend to influence the house price dynamics of other larger metropolitan areas, while it is influenced by some of the smaller ones. In general, we observed that larger metropolitan areas and regions tend to govern smaller counterparts with less inhabitants and economic importance. Additionally, we observed that geographical proximity is a decisive factor for many of the causal relations. On both a regional and metropolitan level, the apartment market provides a clearer picture, more in line with existing research and prevailing literature. Our research contributes to a more comprehensive understanding of the interrelationships and dynamics in the Norwegian housing market on a regional and metropolitan level. Furthermore, the findings contribute to a more precise insight into the underlying causes of how house prices tend to develop over time. We encourage further research to examine why there is different dynamics in the apartment and detached house markets. In addition, more focus on the underlying economic structures and mechanisms causing the ripple effect would enhance the understanding of the housing market dynamic.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2018
Number of pages151
SupervisorsJens Lunde