Norwegian economy: Secret inflation

Apartment buildings are cropping up in areas where there used to be single-family homes with apple gardens. But even these are not many enough or arriving fast enough.

For most Europeans, Norway must seem like a (slightly chilly) paradise these days. While “austerity” is the new trend elsewhere, Norway has returned to its continual boom after a short break during the financial crisis, a break mainly caused by European banks refusing to give credit to our trading partners. Norway today has almost no unemployment and in fact a chronic shortage of some types of workers. Guest workers from Europe have the option to immigrate, and many are taking it. Of course, we are a high-tech country and we don’t really need loafers. Our productivity is very high, and those who can’t keep up are not going to stay employed for long. Even public sector jobs are gradually becoming like that.

That said, wages and salaries are rising for almost everyone, although of course not equally. So it may seem like a paradise. Income is rising and there is almost no inflation! Well, about that…

What with all the people moving here, there simply aren’t enough houses for everyone to live the way they want. People who would prefer to live in a large house, live in a smaller house. People who would prefer to live in a small house, live in an apartment. People who would prefer to own, are renting. Now you may say: “This is how it always is. Desire always exceeds opportunity.” True! But the thing is, housing is getting expensive at a rapid pace. And since all need to live somewhere, it is actually inflation. It is just not evenly distributed. Those who already own a home, don’t notice it except in taxes, and only moderately even then. But the moment they want to upgrade to a larger home, they will find that these are rather more expensive than they used to be. So although they are theoretically growing richer at a rapid pace, they are actually not able to upgrade as they normally would. So: Inflation, but nobody must know it.

Of course, it gets pretty obvious for us who rent. Looking for other apartments without night parties upstairs, I can’t help but notice that the prices are rising steadily, by about 15% a year. Given how large a part rent is of monthly expenses, it is a pretty hefty inflation. If your taxes were rising like that, you’d vote for a different government next time. But due to the camouflage inherent in home ownership, people are actually happy with this inflation. They forget that they don’t really have the option, to sell their home and spend the money. Sure, they can borrow more money against it for each year, if they so desire. But borrowing has never, in itself, made anyone richer. If they invest that money wisely, perhaps. Do you know anyone who does that?

If this seems vaguely familiar, it may be because I warned Americans when they were making the same mistakes we are making now. Even though Norwegians have had the opportunity to point and laugh at the stupid foreigners (both American and European), nobody wants to believe that we have a problem here. It is different with us. “It is typically Norwegian to be good.” (Actual quote by a former Norwegian Prime Minister, although opinions are divided as to whether there was a hint of irony in it. It became a popular saying, anyway.)

Moving to Norway (if you can work smart enough to be the most productive in the world with a short workday and long vacation) is still a good option, but you should not have high expectations about home ownership for the first years unless you have a job title that ends in “Executive Officer”.

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