When housing prices rise faster than wages, people do not become richer. They become more indebted. The housing market conceals the fall of the krone and turns inflation into taxation, interest payments and lifelong bondage.
Norwegians are told that they have become wealthy because their homes have increased in value. It is one of the most successful economic illusions of our age. For when a dwelling rises from NOK 100,000 to 5 million, it is not necessarily the dwelling that has become fifty times better. It is the krone that has become fifty times weaker, measured against what people actually need: housing, security and a future.
The decisive distinction is between price and value. A dwelling provides shelter. It keeps out the rain, gives the family a kitchen, a bedroom, a bathroom and a place to wake up in the morning. If the same house still stands there after 30 years, with the same walls, on the same plot and with the same function, its use value has not multiplied many times over merely because the market price has risen. The house has not learned to produce electricity. It does not bake bread. It does not pay your taxes. It gives you a roof over your head. That is the value. The price is something else.
When the price of housing nevertheless explodes, it is largely because the monetary system has changed. After the beginning of the 1970s, money was detached from a fixed anchor. Credit growth accelerated. Banks were able to create ever more money through lending. And where did much of this new purchasing power go? Into the housing market. Not because dwellings suddenly became substantially more useful, but because ever more credit chased the same kinds of property.
Let us take a simple example: A family buys a home for NOK 500,000. A few decades later it is “worth” 5 million. The family feels richer. The bank says the same. The estate agent says the same. The municipality says the same. The Tax Administration says the same. But what has actually happened? The family still lives in the same house. If they sell, they must buy another dwelling in the same inflated market. The gain exists only if they move to something far cheaper, move out of the high-pressure area, rent for the rest of their lives or die and leave the “value” to their heirs. For the person who merely intends to live there, the alleged wealth is to a large extent a paper gain.
Yet this paper value is used as the basis for everything. The bank uses it as collateral. The municipality uses it as the basis for property tax. The state uses market value as a measure of wealth. The family uses it as psychological security. And thus the great trap emerges: The inflated housing value is treated as genuine wealth.
This is where the system becomes dangerous. When the dwelling rises in price, the owner can borrow more. One can renovate the kitchen, buy a car, help the children into the housing market, finance a cabin or cover more expensive consumption. Everything appears reasonable so long as housing prices rise. After all, the bank has collateral. But the collateral is nominal. It is based on market price in a market that itself has been inflated by credit, low interest rates, scarcity in high-pressure areas and a currency that is losing purchasing power. If interest rates rise, income falls or housing prices correct, it becomes clear what this “wealth” really was: debt with paint on it.
This is why the housing market is not merely a market for houses. It has become the principal channel for transferring purchasing power from ordinary households to banks, the state and the public sector. First, the krone loses value through inflation and credit growth. Then housing prices rise as a consequence of that same monetary debasement. Then the state and municipality arrive and calculate tax on the inflated market value. You therefore pay first through reduced purchasing power. Then you pay once again because your asset is priced higher in the weakened currency.
This is the double, indirect taxation that almost no one talks about.
Take property tax. It is presented as a moderate municipal tax. A few per mille here, a few thousand kroner there. But the basis is not the dwelling’s use value. The basis is an estimated market value. And the market value is to a large extent the result of credit growth, inflation and politically managed scarcity. When the municipality taxes this value, it is not merely taxing the house. It is taxing the effect of monetary debasement. It is as though the state first weakens the measuring tape, then measures the house again and says that it has become larger.
The wealth tax functions in the same way for those affected by it. It is based on the premise that the dwelling represents wealth. But for a pensioner in a fully paid-off house, the dwelling is not necessarily liquid wealth. It is the framework of life. A home. When the market value rises, the tax may rise without the pensioner having gained a single additional krone to live on. On the contrary, electricity, insurance, municipal charges, maintenance and food may simultaneously have become more expensive. On paper he is richer. In everyday life he is poorer.
For young people the mechanism appears even more brutal. They do not enter the market with old housing gains behind them. They encounter the entirety of inflation at once. The parents’ generation bought homes with one income, or with one principal income and one part-time income. Today’s young couples often have to present two full incomes, higher education, long working hours, parental help with equity and maximum debt exposure merely to buy a dwelling that the previous generation would have called modest. The economic gain from gender equality has to a large extent been capitalised into housing prices. When the family acquired two incomes, the housing market took the second one.
That is why many feel that they are running faster, yet covering a shorter distance. Both work. Both pay tax. Both are educated. Yet the dwelling demands a greater share of lifetime income than before. What was supposed to provide freedom was absorbed by the price level. Previously, one income could support much of the family. Now two incomes are required merely to keep pace with the bank.
And the state does not stand outside this. The state profits from the system. High housing prices produce higher stamp duty on transactions. Higher market values provide the basis for higher property taxes and wealth assessments. Higher debt binds people to work, taxation and stability. Higher housing costs make the population more cautious. The person who owes the bank five million does not readily engage in revolt. He goes to work.
At the same time, people are told that housing prices reflect prosperity. But prosperity is not measured by how much debt you can carry. Prosperity is measured by how much freedom you have after necessary costs have been paid. If a family in the 1970s could buy a home, have children, a car and holidays with one principal income, while a family today requires two incomes and thirty years of debt to achieve the same, then it is not obvious that we have become richer. Yes, we have acquired more digital gadgets. But the great necessity — housing — has escaped us.
The consumer price index does not make the picture clearer. On the contrary. When housing purchases are treated as investment rather than as an ordinary cost of living, the actual establishment cost is underestimated in the inflation picture. Wage settlements are based on a rate of price growth that does not fully capture how expensive it is to establish oneself. Thus the worker receives compensation for official inflation, while the housing market confronts him with real inflation. That is the difference between theory and receiving the keys.
This is also the explanation for Norwegian housing psychology. People celebrate when the value of their dwelling rises. But in reality they are often celebrating the fact that their children are becoming poorer. For every million by which the value of the dwelling increases, the entry ticket for the next generation becomes more expensive. The established owner feels richer, but society’s overall freedom becomes smaller. Inheritance becomes more important. Parental assistance becomes more important. Geography becomes more important. Class divisions are cemented not through production, but through access to property purchased before prices spiralled out of control.
This is where the housing market reveals the deepest injustice in inflation policy. Inflation does not strike equally. Those who already own real assets are protected. Those who possess only wages fall behind. Those who own housing may watch their wealth rise nominally. Those saving for housing watch the goal move ever further away. Those with parents who possess housing wealth receive help getting started. Those without must borrow more. Thus the housing market becomes a machine for social sorting disguised as popular capitalism.
And when interest rates then rise, the final act arrives. Households are told that they have lived beyond their means. That is an impertinence. People have not necessarily lived beyond their means. They have purchased access to a necessary good in a system where the price has been inflated by credit, tax policy, regulations and monetary debasement. First they are pushed into debt. Then they are moralised over because of the debt.
The dwelling was supposed to be the home. But instead it has become the mortgage deed for the entire social model. The bank receives the interest. The state receives the taxes. The municipality receives the charges. The estate agent receives the commission. And the family is told that it is fortunate to own something that constantly rises in value.
But the question is simple: If the dwelling makes us so rich, why must we borrow ever more in order to live in it?
The answer is that housing prices no longer primarily tell us how much the dwelling is worth. They tell us how much the value of the krone has fallen, how much credit the banks have pumped in, and how much of future labour the state and the financial system have already mortgaged.
It is in the housing market that people are fleeced. Not through one brutal cut, but through small, lawful, well-regulated deductions over an entire lifetime. First through inflation. Then through debt. Then through interest. Then through taxation. And finally through the illusion that this is prosperity.
A people who must borrow ever more in order to live ever more cramped lives have not become richer. They have become bound.