Consuming the Home. Walking the Thin Line between Welfare and catastrophe

Abstract

The financialisation of the world economy has enabled households to build welfare and accumulate assets with borrowed money. But it has also led to a more unstable economy and recurrent financial crises. Norway is one of the few European countries being only lightly affected by the current one. Instead, the country is marked by more than two decades of economic upturn. However, during times when “everybody” is getting rich, people are also moving into risk positions that may prove difficult to tackle over time. Based on recent survey data, this paper explores how severe potentials for crisis are building up among Norwegian households through extensive ‘equity borrowing’ whereby homeowners spend their housing wealth by rolling back the costs of consumption into an existing mortgage. The practice means that households, encouraged by a favourable system with low interest rates and sales-oriented lenders, speculate with their future incomes against expectations for rising property prices. As a result, both mortgage volumes and home prices have risen to unprecedented levels. Economists generally expect the “market” to “fix” any imbalances through so-called “corrections” where “unnatural” housing prices are brought down to reasonable proportions. This may be unproblematic as long as such corrections are done at a point in time when the system is still “sound”.  The paper argues that this is no longer the case for Norway as the level of borrowing is too high.