Building a better housing market in Denmark: a reform package to improve efficiency, raise supply and enhance affordability

By Jarmila Botev, Peter Hoeller, Caroline Klein

Danish housing policy aims at providing quality and affordable accommodation to all in an egalitarian way. Access to quality housing is good overall, but housing costs are relatively high (Figure 1), especially in major cities like Copenhagen and residential mobility has been low. This calls for a broad reform over time covering housing taxation, land use planning, building and rental regulation and social housing. The 2026 Economic Survey of Denmark, released today, takes a closer look at current challenges in the Danish housing market and lays out reform options. 

Reforming building regulations to raise supply responsiveness 

A slow response of new housing to growing or changing demand can raise price pressure. Streamlining land use governance and building regulations to raise supply flexibility can thus improve affordability. For example, building regulations can set rules on floor area, building height or number of storeys and this can lead to low urban density.  Allowing greater building density, especially in areas close to transport links and where shortages are high, would raise housing supply. Moreover, land-use governance currently overlaps across different administrative levels. This fragmentation can impede housing development projects. Focusing planning at the metropolitan level rather than at lower levels of government can enhance the responsiveness of housing supply to evolving demand within broader areas. 

Easing rent regulation to improve the functioning of private rental markets

Denmark’s private rental market is small and a large share of it is regulated. Denmark has strict rent control for houses built up until 1991, making up around three quarters of private rental housing. Stringent rent control can lead to rationing, so that homes are allocated based on waiting lists or personal contacts. Incumbent tenants are, in turn, less likely to move when they need to, for instance for a new job, or tend to live in dwellings that are larger than they need. In addition, rent control does not benefit those who need the most – it is most favourable for high-income households (Figure 2). Aligning regulated rents more closely with market rents, for instance by indexing rent increases on wage growth, would lead to a better functioning housing market. Easing rent control could raise affordability concerns for low-income households, but these can be addressed through targeted increases in housing allowances. Unlike rent control, housing allowances can focus support on those who need it most. This makes them a more efficient tool for preserving housing affordability.  

Reforming social housing to increase access of those most in need 

The Danish social housing sector, called “non-profit housing”, is one of the largest in the OECD, making up about 20% of the total housing stock. It follows a universalist approach, with all households being eligible, with no income threshold and is cost-based, with below-market rents. Investment in social housing contributes to increasing housing supply, resulting in greater affordability in the overall housing market. However, the existing cost cap legislation provides little flexibility for building new social housing, as building costs rise. The planned cap increase is therefore a welcome development, though its effectiveness needs to be assessed. 

In addition, the existing social housing stock is not well geared to house those most in need, with long waiting times, especially in big cities like Copenhagen. Incentives for residents to move out of social housing, when their economic situation improves, should exist, to make room for tenants with greater need. The allocation of social housing should be rebalanced from better-off households, for instance by periodic eligibility reviews, fixed-term tenancies or indexing social rents to individual income, while preserving inclusive and socially mixed neighbourhoods.

Reforming housing taxation to increase efficiency and lower house prices 

Denmark provides tax relief for mortgage interest payments and the property value tax is low (Figure 3). Favourable tax treatment of housing lowers the after-tax cost of owning compared with renting and pushes up housing demand, thereby raising prices if supply is rigid. Phasing out mortgage interest relief or raising the property value tax gradually can thus reduce house prices substantially over time. In the long term, lower house prices facilitate homeownership of a larger share of the population and drive down rents. In the medium term, removing the tax advantage would make those benefitting from it worse off, therefore the reform should be gradual, as was the case for instance in France, the United Kingdom, the Netherlands and Finland. 

A well-tailored package of reforms can improve the functioning of Danish housing market 

Housing involves complicated trade-offs between objectives and avoiding unintended consequences. While Denmark has managed many of these well to achieve good outcomes, a well-tailored package of measures would help ensure that housing policy continues to work well as society evolves and that new housing is built where it is needed. Experience from OECD countries shows that reforms and progress are often gradual and so delay is costly.  

For more information, visit the Denmark Economic Snapshot page.

References:

OECD (2026), OECD Economic Surveys: Denmark 2026, OECD Publishing, Paris, https://doi.org/10.1787/3d6cb4b8-en