The Danish financial sector is big and there is a high degree of inter-connectedness between banks, mortgage institutions and pension funds. Danish households have large balance sheets and high levels of gross debt. Even though the high debt levels are matched by large assets, notably in form of pension savings, there are feedback loops with the housing market and households’ balance sheets contributing to macroeconomic volatility. Currently, the very low interest rate environment may contribute to the building up of risks, notably in the housing market. Given the on-going recovery of the housing market, it is an opportune time to eliminate the debt-bias in taxation, which would strengthen the automatic stabilisers of the fiscal system. In addition, further liberalising the private rental market would help create a more dynamic housing market overall and reduce the need to meet housing needs primarily with the owner occupancy segment.
