Peter Hoeller
OECD Economic Surveys: Denmark 2026
Abstract
Housing costs are high in Denmark and there are housing demand and supply imbalances, especially in the Copenhagen area. The tax treatment of owner-occupied housing is generous and inflates land prices. This generosity should be reduced over time. Rent control hampers mobility, leads to poor matches between housing needs and available units and should be eased. Despite a vast social housing stock, access to social housing is difficult, with long waiting times. Mechanisms to improve the allocation of social housing should be explored to improve its use. The planning system should be more focussed towards building where it is needed most. The decarbonisation of the housing stock is well advanced and will get another boost from the recent green tax reform.
The provision of good quality, affordable homes is the main objective of housing policy nearly everywhere in the OECD but has a deeper meaning in the Nordic countries as they put emphasis on the provision of housing services that are universal and generous. In this way, social gaps should be reduced and poverty, that can push people into homelessness, eradicated. In Denmark, this egalitarian spirit is expressed in the widespread use of rent controls and the construction of vast social or non-profit housing estates, which are financed with an innovative revolving fund system. There is a strong focus on environmental sustainability, where very good results have been achieved. For instance, Denmark has the most developed district heating system in the OECD and carbon pricing is well advanced. In the Danish model, local governments provide a wide range of public services, including housing services, though there is also much co-operation between the levels of government and among municipalities.
Danish housing policy aims at providing affordable housing for all citizens who need it; providing social housing for marginalised citizens (people afflicted by homelessness, disabilities, addiction, or other social issues); creating mixed neighbourhoods across social, cultural and economic backgrounds; re-developing marginalised neighbourhoods defined by specific statistical criteria; and ending long-term homelessness (OECD, 2025a). In recent years, flagship reforms were the establishment of the Fund for Mixed Cities and a property and green tax reform (Danish Ministry of Finance, 2024).
According to subjective measures of housing adequacy, about 30% of the Danish population is concerned about finding or maintaining adequate housing (Figure 4.1). This suggests that a sizeable part of the Danish people is not happy with their housing conditions. Yet, Danish people are among the least concerned in the OECD about finding or maintaining adequate housing, which suggests that the Danish housing market works well in many respects. This is true for women and men, owners and tenants, but less so for people in the bottom income quintile and for young people. Living space is sizeable by OECD comparison, especially for homeowners (OECD, 2025a).
Share of people concerned about being able to find or maintain adequate housing, 2024
Note: Based on 2024 OECD Risks that Matter Survey. Data refer to the share of people who responded "concerned" or "very concerned" to the question, "Thinking about the next year or two, how concerned are you about not being able to find/maintain adequate housing". Unweighted average of 27 countries for the OECD aggregate.
Source: OECD Affordable Housing Database, HC1.4 Subjective measures on housing.
Despite the good performance in many respects, Denmark faces significant housing market challenges due to deep-seated structural issues of the housing market and the transition to a low-carbon economy. The Danish housing market is characterised by a large share of tenant households and a relatively low share of homeownership (Figure 4.2). It also includes cooperative housing, which makes up 7% of the housing stock overall and plays a bigger role in large cities. The importance of rental housing is driven in part by the large stock of social housing, which accounts for a fifth of all dwellings, the third largest share in the OECD behind the Netherlands and Austria. Of all rental homes, only one in five are in the private, not rent-controlled, sector. The remainder, either social or rent-controlled housing, have long waiting-lists, as rents are well below market value. The extensive regulation of the majority of Danish rental housing leads to inefficient matches between tenants and apartments, contributing to demand and supply imbalances, especially in big cities.
Share of households in different tenure types, 2024 or latest year available
Note: The OECD aggregate includes the countries for which all tenure types are available. See the source for country-specific information. Tenants renting at subsidised rent are lumped together with tenants renting at private rent in Australia, Austria, Canada, Chile, Colombia, Costa Rica, Mexico, New Zealand, Türkiye and the United States. Data on rent (subsidised) for Denmark refers to social rental dwellings.
Source: OECD Affordable Housing database, indicator HM1.3. Housing tenures and PH4.2. Social rental dwellings stock.
Housing plays a pivotal role in people’s lives and takes up a large share of household income. The share of housing-related spending in total consumption spending has been on the rise for the past few decades across the OECD and this is also the case in Denmark. In 2024, the share of housing-related in total consumption spending was the second highest in the OECD (Figure 4.3). It was still higher in Finland, but considerably lower in Sweden and Norway. This raises concerns about the affordability of housing.
Decomposition of housing-related spending, 2024 or latest available year
Note: OECD calculations based on OECD National Accounts Database. The OECD average only includes countries with available data for each category.
Source: OECD Affordable Housing Database, HC1.1 Housing related expenditure of households.
Despite widespread rent control and a vast social housing stock, housing costs appear high, particularly in the largest cities. The housing cost overburden rate – measured as the share of households spending more than 40% of their disposable income on housing – is the highest in the OECD (Figure 4.4), though this measure is based on pre-tax mortgage costs. More than one in five households is in this situation, double the OECD average and considerably higher than in the other Nordic countries. This burden rate is especially high for tenants paying rent at market prices in Danish cities, and for 15–29-year-olds and single people. While the high costs for single people partially reflects the large number of young people and students that live alone in Denmark, it remains higher than in the other Nordic countries that also have a large share of young people living alone. The cost overburden rate is also very high among immigrants (OECD/European Commission, 2023[3]). Relative to some other countries, this measure may overstate some of the pressures given generally high income levels, generous housing allowances, large scope of tax-financed services that reduce disposable income but contribute to living standards and the high quality of housing.
Note: In Panel A, housing costs cover only those relating to mortgage costs (principal repayment and interest payments) and rental costs for both private market and subsidised rental housing. Unweighted average of 36 countries for the OECD aggregate. See the source for country-specific information. In Panel B, data refers to the percentage difference of the population living in a household where total housing costs represent more than 40% of disposable income by degree of urbanisation.
Source: OECD Affordable Housing database, indicator HC1.2 Housing costs over income; and Eurostat (2025), Housing cost overburden rate by degree of urbanisation.
Affordability concerns are concentrated in the large cities, as house prices and rents have risen more quickly than the national average. In 2023, Danish house prices in cities were 60% above the national average, while those in rural areas were 50% below. This is among the widest differences between cities and rural areas in a sample of OECD countries (OECD, 2025b). High housing costs and a lack of affordable housing is concentrated in the larger cities and particularly affects first-time buyers, large families, elderly people, low-income students and socially disadvantaged people. Not surprisingly, the housing cost overburden rate is much higher in Danish cities than in rural areas and especially high in Copenhagen (Figure 4.4 panel B).
Overcrowding is a measure of how the housing market meets the housing needs of people in different situations. A household is considered to live in overcrowded conditions if it does not have at its disposal a minimum number of rooms, which depends on household size and composition. The share of people living in overcrowded housing is nearly 10% in Denmark, which is considerably lower than in Sweden, close to Finland, but higher than in Norway (Figure 4.5). The overcrowding rate for the bottom income quintile is nearly 20% and for foreign-born it is close to 30%, the fourth highest in the OECD (OECD/European Commission, 2023[3]).
Share of overcrowded households, by quintiles of the income distribution, 2024 or latest available year
Note: Low-income households are households in the bottom quintile of the (net) income distribution. In Chile, Colombia, Mexico, Korea, Türkiye and the United States, gross income is used due to data limitations. In the United Kingdom, net income is not adjusted for local council taxes and housing benefits due to data limitations.
Source: OECD Affordable Housing database, indicator HC2.1. Housing space.
Looking to the future, demographic changes will affect the demand for housing. People are living longer and as a result the share of single elderly households is rising. Marriage rates have been falling, while divorce rates have increased. These trends have many implications for housing demand. An ageing population and the trend towards smaller and more numerous households put strain on housing markets where supply does not respond flexibly to evolving demand patterns. Single-person or single-parent households may find it increasingly difficult to find affordable homes. In the City of Copenhagen, for instance, the supply of smaller two-bed room apartments has not changed since 1981 (Submission by Boligøkonomisk Videncenter). An ageing population also calls for housing that is more accessible and in proximity to a range of essential services (OECD, 2021a; OECD, 2025c).
Over the past decade, various measures have been taken to address these challenges and improve the functioning of the housing market, but these reforms have not touched the root causes of housing market imbalances (Table 4.1). On the other hand, a property tax reform has the potential to reduce tax distortions and the green tax reform enacted in 2025 provides real progress towards reducing housing greenhouse gas emissions (see below and Chapter 2).
The next three sections focus on salient economic features and policy issues relating to owner-occupied housing and the private and social rental sectors. This is followed by a discussion of issues surrounding supply constraints and of progress in decarbonising the housing stock. Macroprudential policies preventing excessive borrowing and speculative activities that affect the financial and housing markets are discussed in Chapter 1.
Tax settings that promote homeownership exist in many countries, but the Danish system is particularly generous (OECD, 2022). A 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 sticky. Denmark provides tax relief for mortgage interest payments, imputed rent is little taxed as the property value tax is low and capital gains are largely untaxed (Box 4.1). By lifting house prices, the tax-favoured status of housing can make it harder for lower-income households to buy a home. This can in turn amplify inequality and put pressure on governments to improve housing affordability through inefficient means. At the same time, well-off households over-invest in housing and under-invest in other assets. A reform of the biased tax treatment of housing can thus support multiple policy goals: improving affordability and making the tax system fairer and more efficient. Tax revenue generated by housing tax reforms can be used to reduce labour taxes (see Chapter 1).
In Denmark, there are two recurrent property taxes: a tax on land and a tax on residential structures. The property value tax (Ejendomsværdiskat) is a central government tax, while the land value tax (Grundskyld) is a local government tax, with the tax rate set by local governments. Taken together, property tax revenues as a per cent of GDP are somewhat above the OECD average, but considerably lower than in the English-speaking countries and France.
Property value tax (Ejendomsværdiskat)
The property value tax is a central government tax dedicated to taxing imputed rent and thus applies only to owner-occupied housing. Denmark froze property tax payments in 2002, which contributed to a fall in effective taxation. These tax savings were unequally distributed across regions, with the largest average benefits accruing to homeowners in the Greater Copenhagen area.
In 2017, a major reform of the property value tax was passed, which entailed a reassessment of the fair market value of properties. Property values have been updated, and the reform was finally implemented in 2024. Given the long tax freeze, reassessments had been expected to significantly raise tax obligations, particularly in areas having witnessed large house price increases.
To cushion the increase in tax liabilities and increase political support, the government embedded the update of property values in a set of changes designed to make it broadly revenue neutral and manage the transition. The statutory property value tax rate was lowered from 1% to 0.51% and a surtax aimed at high-value properties applies above a value threshold of DKK 9.2 million. The surtax level of 1.4% is about equal to the tax value of the mortgage interest deduction. To address liquidity concerns, homeowners whose overall property taxes increase with the new system were compensated through a tax rebate fixed in nominal terms for existing homeowners and they have the option to defer the future increase in recurrent property tax liabilities until the sale of the property.
The implementation of the property evaluation system was delayed from 2021 to 2024. Building an administrative system from scratch has proved to be far more difficult and expensive than expected. Developing IT solutions, as well as re-organisation, has taken longer and been less effective than originally planned. Incorporating new sources of data that were originally not collected for valuation purposes was also difficult. Another major difficulty arose with the implementation of the tax deferring scheme, where the administrative system had to be developed from scratch.
Tax deduction of interest expenses
Interest expenses including on mortgage loans can be deducted from the personal income tax, aiming at tax neutrality between positive and negative capital income across different income sources. A 33% tax credit is provided up to DKK 50 000 for singles and DKK 100 000 for couples, reduced to 25% above the threshold. The thresholds are not indexed, thereby reduced in real terms over time.
Capital gains taxation
Owner-occupied residential property, as well as cooperative shares, are largely exempt from capital gains taxation. Capital gains, when selling a main or secondary residence are not taxed, but the property value tax is based on property market value since 2024 thereby taxing capital gains on an ongoing basis, at a relatively low rate though. The capital gains tax on property (Ejendomsavanceskat) applies only to properties not subject to the recurring property value tax.
Source: OECD, 2022 and submission by the Ministry of Taxation.
The various aspects of the tax system generate low marginal effective tax rates (METRs) on debt-financed owner-occupied housing investments. METRs are negative where the deductions and credits applied to investments in property outweigh the taxes levied over the life of the investment (Millar-Powell, B. et al., 2022). The Danish METR is estimated to be negative and lower than in virtually all other OECD countries (Figure 4.6, Panel A): only the Dutch METR is more negative than the Danish. In addition, the taxation of housing is low compared to other Danish assets, which violates the principle of tax neutrality between assets in the same country and it is also below the OECD average (Figure 4.6, Panel B). However, as the Danish property value surtax of 1.4% approximately corresponds to the tax value of the mortgage interest deduction, tax neutrality is achieved for high-value properties (see Box 4.1).
The OECD has produced housing market projections to 2050 and policy scenarios. In the baseline scenario, the Danish house price-to-income ratio, which measures the number of years of disposable income required to buy a 100m2 dwelling, would go up by three and a half years (Cournède, B., V. Ziemann and F. De Pace, 2020). Removing the tax privileges of owner-occupied housing would reduce the price-to-income ratio by nearly four years.
Owner-occupied housing is an asset and to avoid distortions it should be taxed as other assets. To avoid distortions to rental housing, owner-occupied housing should be taxed in a symmetric way to rental housing (so-called imputed rent taxation). This means taxing imputed rents, when mortgage interest relief is provided. The taxation of imputed rents from owner-occupied property is rare and only four OECD countries (Denmark, Greece, the Netherlands and Switzerland) tax imputed rents (Millar-Powell, B. et al., 2022). Imputed rent taxation can be implemented through recurrent taxation of property at its up-to-date market value with a rate calibrated to equalise taxation of owner-occupied housing to that of rentals. In Denmark, the property value tax is a central government tax dedicated to taxing imputed rent and is thus part of central government personal income taxation (see Box 4.1). A reform of the property value tax, which started nearly a decade ago, took effect in 2024 and restored the link between the property tax and actual property values. Nevertheless, although the Danish property value tax is deemed to tax imputed rent, the standard tax rate of 0.51 per cent is low for most taxpayers.
Note: While the estimates relate to 2016 data, they were validated prior to the publication of the study in 2022. In Panel A, METR stands for “Marginal Effective Tax Rate” for owner-occupied, debt-financed housing investments. Transactions, income, wealth, recurrent property and capital gains taxes are taken into account. In Panel B, the marginal effective tax rate summarises the tax on investing one additional currency unit across different assets with an expected holding period of 5 years (20 years for pension funds and housing). The tax rates are adjusted for country-specific average annual inflation rates over the period 2011-16. Savings in private pensions are assumed not to give rise to reductions in means-tested public pensions, which can raise marginal taxes substantially.
Source: Millar-Powell, B. et al. (2022); OECD (2021), Brick by Brick; OECD (2025a), OECD Revenue Statistics database; and OECD (2018), Taxation of Household Savings.
While the generous tax treatment has been justified by its perceived positive impact on homeownership, evidence from Denmark and other countries suggests that mortgage interest deductibility primarily drives up property prices and exacerbates wealth inequality, without significantly improving homeownership rates in the long term. Evidence from Denmark assessing the effects of major tax reforms in the 1980s, which reduced the mortgage interest deduction for high-income taxpayers, found that: i) tax subsidies to promote home ownership had a tightly estimated and robust zero effect on whether households chose to rent or own; ii) tax subsidies were shown to influence the size and value of the homes purchased, with a decrease in the tax subsidy resulting in important reductions in housing size and house prices; and iii) the largest effect of tax subsidies was on household financial, rather than housing decisions (Gruber, J., A. Jensen and H. Kleven, 2021). This tax treatment is regressive as it subsidises those households with the financial capacity to obtain a mortgage, with the subsidy increasing by property value. It likely leads to over-consumption of housing, drives up the price of land and results in significant tax revenue losses.
Denmark should implement a long-term reform strategy with the objective of reducing the favourable treatment of home ownership, which results in high property prices. The best strategy would be to raise the taxation of imputed rents via the property value tax to a more appropriate level, building on the recent update of the property valuations. Higher tax revenues should be re-channelled by reducing other, more distorting taxes, such as those on labour. Property taxes have been found to be among the least damaging taxes for long-run economic growth (Akgun, O., B. Cournède and J. Fournier, 2017[1]). Property taxes can also improve the allocation of housing, potentially improving housing affordability. For instance, they can incentivise older individuals without dependents who live in relatively large properties to downsize, releasing larger residences into the market and contributing to a more balanced and affordable housing market. Empirical studies have also shown that recurrent taxes on immovable property are commonly capitalised into house prices over time, helping slow house price growth and fluctuations.
However, if an increase in the taxation of imputed rent is not feasible, an alternative approach focusing on mortgage lending would be to reduce the mortgage interest deductibility by introducing a cap on the total amount of interest that can be deducted and then gradually lowering this cap over time to a level that ensures tax neutrality. This has a particular impact on homeowners and buyers. Introducing a cap on the deduction would reduce the benefit to higher income earners. This would make owner-occupation more accessible for new buyers and enhance tax-system efficiency. However, lower house prices prompted by reforms would make all current owners worse off, especially those who are highly leveraged. Such a reform should thus be phased in gradually – as has been the approach, for example, in France, the United Kingdom, the Netherlands and Finland, where mortgage interest relief has or is being phased out (OECD, 2022).
Taxation of capital gains on owner-occupied housing is relatively generous. While Danish capital gains taxation is generally progressive, with a rate up to 42% for rented residential property, corporate bonds and shares, owner-occupied residential property, as well as cooperative shares, are largely exempt. Homeowners do not pay tax on gains realised upon the sale of their primary dwelling provided they have lived in it. Holiday-home owners – typically well-off households – are subject to the property value tax and the land tax but are exempt from the capital gains tax provided they used the property during the ownership period. While the taxation of owner-occupied housing via the property value tax provides some ongoing capital gains taxation and avoids negative aspects of capital gains taxation such as lock-in effects, the property value tax rate is very low so that little of the capital gains are taxed in this way. On the other hand, inheritance tax comprises homes and thresholds are fairly low.
Most OECD countries exempt capital gains from the sale of main residences only. However, Chile, Israel, Korea and the United States exempt gains on main residences up to a cap, while Sweden taxes a proportion of the capital gains. Many countries tax capital gains from the sale of secondary residential properties (Hourani, D. and S. Perret, 2025), because lock-in effects and thus mobility considerations are less relevant for holiday-home owners. Capital gains on the sale of a holiday home should also be taxed in Denmark.
Housing cooperatives play an unusually large role in Denmark, supported by favourable tax treatment. They were set up to provide affordable housing and contribute to the diversity of urban areas. The rent act was revised in 1975 to include an obligation for owners of rental housing to give tenants a first option to buy the property as a cooperative. This was particularly the case in Copenhagen and Frederiksberg, where there was a large stock of ageing and poorly maintained rental housing. This led to a boom in the creation of housing cooperatives. Housing cooperatives make up around 7% of the housing stock, but nearly 30% of housing in Copenhagen Municipality, although new cooperatives are no longer being created on any scale. The housing cooperatives own and manage a property collectively. Members obtain the use right to a dwelling through the purchase of a share (Larsen, 2024). The associations are economically and organisationally independent, and within legislative limits, members have significant decision-making power. Because rents are below market value, the price per square meter is almost half compared to owner-occupied flats in Copenhagen, long waiting lists to get access to co-operative housing lead to preferential treatment of family and friends and opaque practices to enter the cooperatives.
The share owners in cooperatives benefit from being exempted from the property value tax. Although the cooperative associations could in principle deduct interest payments, in practice there is no offsetting income to take advantage of this facility. The net result is subsidisation as the tenants have interest deductibility without being liable for the property value tax on their share. As the preferential tax treatment of cooperatives is difficult to justify, share owners should be liable for the property value tax with an allowance for borrowing. The tax treatment should be aligned with that of owner-occupied housing. Furthermore, share owners of cooperatives that dissolve themselves should pay capital gains tax.
A well-functioning private rental market is important because it makes it easier to find housing according to changing needs, but Denmark’s market is small and a large share of it regulated. The ease of moving residence geographically has efficiency implications because it affects the job-matching process. Low rates of residential mobility can be an obstacle to labour market adjustment, with adverse effects on overall economic performance (OECD, 2021a). Many studies show that people who live in rent-controlled housing move less often and that they more often find jobs in the local area. Such lower workforce mobility is likely to result in lower productivity. Residential mobility (the percentage of people moving over five years) in Denmark is indeed lower than in the other Nordic and the English-speaking countries (OECD, 2021a).
Rent regulation implies a transfer of resources and rights from landlords to tenants. Regulation can help mitigate hold-up problems by controlling the extent to which rent can be increased. While most countries have adopted legislation limiting rent increases for sitting tenants, the practice differs more when it comes to regulation of rent for new tenants. Rules that prevent landlords from raising rents excessively to take advantage of the fact that, over time, tenants may become more reluctant to move because of increasing attachment to the local area have benefits and provide tenants with greater certainty over their future housing costs.
In Denmark, the form of rent control depends on when the rental property was built. The rent level for private rental housing built up to 1991 is regulated, either on a cost or value basis. These rents can be well below the level that would prevail in an open market. Rents that are value based are higher than cost-based rents, but still below market rents. Value-based rents also apply for all rentals in pre-1992 buildings, if the lease has undergone a renovation that has significantly raised its value. The regulated segment currently accounts for approximately 72% of private rental housing. For private rental housing built after 1991, the rent can be freely negotiated between the tenant and the landlord when the lease is entered into, so that over time the overall adverse effect of rent regulation has eased as more property is subject to market conditions. For existing tenants, there are rules that limit rent increases during a tenancy. For homes built after 1991, rent increases are indexed with the so-called net price index, a consumer price index excluding taxes and duties (The Economic Council, 2023). The OECD index of the stringency of rent control for Denmark is close to the OECD average. It is less stringent than in Sweden, but more stringent than in Finland (Figure 4.7).
Rental market regulation index
Note: OECD calculations based on answers to the 2019 OECD Questionnaire on Affordable and Social Housing.
Source: OECD (2021a), Brick by Brick: Building Better Housing Policies.
While rent control is often justified by the desire to secure affordable rental housing for low-income households, rent control creates rationing so that homes are allocated using, for example, waiting lists, personal contacts or follow landlords' preferences. An Economic Council study shows that it is tenants with a high income, a university education and the elderly who gain the most from rent control (The Economic Council, 2023]). Among tenants in older private rental housing, the estimated average annual rent reduction linked to the rent regulation is approximately DKK 12 000 for those with low and medium incomes and approximately DKK 25 000 for those with the highest incomes (Figure 4.8, Panel A). The average annual rent reduction masks large differences between tenants that have the same income level. Thus, just under 20% of low-income tenants do not obtain any rent reduction, while approximately 8% have annual rent reductions of more than DKK 50 000 (Figure 4.8, Panel B).
Note: The reductions in rent are calculated in household equivalent units. In Panel B, low-income tenants refer to households in the second income decile.
Source: Danish Economic Council secretariat.
Rent control can lead to various types of efficiency losses. For older rental housing units where the rent is below the market rate, this can result in a poor match between the rental properties and the tenants' wishes. An analysis by the Economic Council finds that there is a bad match of the order of 15 to 35% of the older private rental housing. A bad match exists, for example where households live in dwellings that are smaller or larger than they would choose in the absence of rent control (The Economic Council, 2023). Moreover, the increase in market rents has been higher than the increase in the net price index, which is used to regulate increases in rents over time for private rental housing built after 1991, so that the differential has widened and the distortion has increased.
The private rental market should be made more effective by removing restrictions to a closer alignment of rents with market conditions, while taking into account the trade-off between efficiency and distributional concerns. If rent increases followed wage increases rather than the net price index, they would likely track market conditions more closely, reducing the loss of efficiency while maintaining housing costs in line with the income of wage earners and transfer payment recipients (The Economic Council, 2023). A deeper reform could aim to align regulated rents more closely with market rents. Finland deregulated the rental market in two steps (Box 4.2). In the Danish context, one step could be to shift new rentals in pre-1991 housing from a cost to a value-based system. In a second step this could be extended also to existing cost-based rentals. In Finland, the whole regulated market segment was liberalised and the reform was accompanied by a rise in housing allowances. These measures may require higher housing allowances for those on low incomes.
In Denmark, spending on housing allowances, at 0.7% of GDP, is the third highest in the OECD. It is granted based on housing expenditure, the income of the household, the area of the dwelling and the composition of the household, including the presence of children. Special, more generous, rules exist for pensioner households and people on disability benefits. Denmark is among the very few countries with no income threshold and thus also among the few countries, where over 10% of households in the middle quintile of the income distribution receive a housing allowance (OECD, 2024b). While no income threshold exists, there is a rent threshold of DKK 94 200 per year and an allowance threshold of DKK 49 716 in 2025, which is generous. A better targeting of the housing allowance would make it possible to raise the allowance for those most in need, while not spending more money on the allowance. Any changes to the housing allowance would also need to take into account any side effects on financial work incentives (Chapter 3).
Where supply is rigid, an increase in housing allowances may have the unintended consequence of putting upward pressure on house prices and rents. This pressure can offset the intended effect of allowances on affordability for beneficiaries while making housing more expensive for households who are not receiving them. Dealing with this trade-off calls for complementary measures to raise housing supply responsiveness to changes in demand.
Finland started deregulating rents following the severe economic crisis in the early 1990s to reduce the risk of future housing bubbles. Deregulation advanced in two steps: In 1993, rent controls were abolished for new contracts and in 1995 also for existing contracts. This led to a liberalised market with no legal limits on initial rent or subsequent rent reviews. In the case of long-term rental agreements, the rent is typically reviewed annually. The size of rent increases must be specified in the lease agreement, and in most cases, the rent increases are based on the cost-of-living index. The OECD index of the stringency of rent control is now among the lowest in the OECD (Figure 4.7).
The motivation of the reform was to boost the construction of rental apartments. As a result of the reform, the median burden of rent payments for tenant households is the highest in Finland (32%) but not that much lower in Denmark at 27%. The easing of rental market regulation in Finland occurred in the context of very strong housing support for vulnerable households. Finland had the second highest spending on housing allowances as a per cent of GDP in the OECD, just before Denmark. An important difference between Finland and Denmark is the generosity of the criteria for receiving the allowance in Denmark, which means that the targeting of the measure on low income households is weaker (OECD, 2025a). Moreover, Finland implemented significant cuts to the housing allowance in 2025.
Source: (OECD, 2021a).
4.5.1. Social housing is very well developed
In Denmark, social housing is dubbed non-profit housing, reflecting its aim to house a wide range of the Danish population. It is provided at cost-based rents through 475 housing associations, which manage more than 600 000 social housing units, where approximately 1 million people reside. The social housing sector is private and not-for-profit, but subject to detailed public regulation. The social housing sector is among the largest in the OECD, making up about 21% of the total housing stock. The share of social housing in the overall housing stock has declined in many OECD countries over the past decade, but with an only small decline in Denmark. Revolving funds have been developed in some countries, including Denmark, as part of a long-term funding strategy for social housing (Box 4.3).
Denmark’s social housing policy follows a universalist approach: It is the only OECD country where all households are eligible and where there is no income threshold. Already at the age of 15, people can register on waiting lists. Universalism is seen as important to encompass a wide and heterogeneous population to promote social mixing. Austria and the Netherlands have also traditionally had universalist models and have the biggest social housing sectors (Figure 4.9). However, the Netherlands has moved to target social housing on households below a certain income threshold, while Austria has an income threshold for eligibility, though it is very generous (OECD, 2020). The social housing sector is considerably smaller in Finland and Norway, while it does not exist in Sweden because of tight rent regulation in the private sector.
Revolving funds have been developed in some countries as part of a long-term funding strategy for social housing, including in Austria and Denmark, through a mix of state guaranteed loans and market loans.
In Denmark, the National Building Fund, created in 1967, is a key pillar of the national model to provide affordable housing, and is largely implemented by housing associations. The National Building Fund is an independent institution. New non-profit housing units are financed by an 86-90% loan from a mortgage institution (government backed), an 8-12% municipal capital loan and a 2% tenant deposit. Rent payments concerning financing the acquisition cost of new non-profit housing are fixed as a percentage of the total cost and are adjusted annually by the net price index for the first 20 years after loan take-up, and then by three quarters of the index increase until the 45th year, at which point rents are maintained at the nominal level, which was then reached. Thus, a share of tenants’ rent is used to pay off the housing association’s mortgage loan for the first 30 years, at which point the share is allocated to the state for another ten years. Once this period is over, the share is allocated to a fund within the local housing association (one-third) and to the National Building Fund (two-thirds).
Approximately half of the National Building Fund’s resources are used for the construction of new social housing (OECD, 2020) with the rest being used to meet costs, including borrowing costs. In this way, each housing organisation contributes to and can borrow from the Fund, which supports a wide range of activities to ensure the quality of social housing, including renovation of the existing housing stock and social and preventive measures in vulnerable areas, the development of social master plans that are co-financed with municipalities to fund measures related to security and well-being, crime prevention, education, employment, and parental support.
The housing associations benefit from smoothing of payments over time and a number of indirect subsidies in the form of tax breaks and exemptions. This includes a tax exemption on their cashflow, including for corporation tax. They are also exempt from VAT. However, there are some exceptions to this. For example, VAT must be paid on construction project management fees and payroll tax on services provided by them.
Overall, the financial position of this system is strengthening as the number of housing developments that have paid back their mortgages is increasing, so that the resources generated by the rents can be used to pay a larger part of physical and social modernisation programmes.
Source: (OECD, 2020); Submission by the Danish social housing association, BL (Danmarks Almene Boliger).
Share of social rental dwellings, 2022 or latest year available
Note: Unweighted average of countries for the OECD aggregate. See the source for country-specific information.
Source: OECD Affordable Housing database, indicator PH4.2. Social rental dwelling stock.
The social housing system is designed to prevent speculation and the rent is cost-based. Rents should equal the costs incurred by housing associations for building, maintaining and managing the dwellings. Social housing rents were 56% of the market rent in Copenhagen in 2020 (OECD, 2025a). A cost-based approach has the benefit of taking into account the actual costs of developing, operating and maintaining the housing stock, but it does not reflect a household’s ability to pay for housing. There can also be a big difference between rent levels in newer housing developments compared to older estates (OECD, 2020). In Copenhagen, for instance, rents in estates built after 2000 are nearly 30% higher than in estates built before 1950.
In the absence of income targeting, demand for social housing exceeds supply and allocation is governed by waiting lists, which can be very long for good locations in high-demand areas. Priority allocation is reserved for certain categories, such as families with children, people with disabilities or the elderly. In addition, municipalities can assign households with housing-related social problems to social housing. The municipalities are entitled to use every fourth of the vacant family dwellings for these means-tested assignments, which take priority over the waiting list. In addition, workers and students can bypass more vulnerable households on the waiting list to facilitate social mixing within certain housing estates characterised by a high share of socially and economically disadvantaged tenants (OECD, 2020).
Despite the inclusive approach of the Danish non-profit housing model, social housing residents have on average lower income levels and higher unemployment rates than the country average, as well as a higher share of single persons or single parents. According to the Danish social housing association, BL (Danmarks Almene Boliger), more than 40% of people with earnings in the lowest income quintile live in social housing, compared to 18% in the third quintile. There are still 4% in the highest income quintile in social housing. Given that rents are not linked to income and are below market rents, tenants with a high income gain the most from being housed in social housing (Figure 4.8) (The Economic Council, 2023).
Contrary to Denmark, many social housing providers in the OECD have introduced various measures to require or incentivise residents to transition out of social housing when their economic situation improves, to make room for tenants with greater need (OECD, 2020). Such tools include: periodic eligibility reviews, fixed-term tenancies and income-dependent rent increases, where social housing rent levels can be tied to residents’ income, so that the rent increases when a tenant’s economic situation improves above a certain threshold. While there is a tension with the universalist model, linking rents partly to income for higher income earners would help generate additional revenues for the system and reduce incentives for higher income earners to use social housing. The various options to balance socioeconomic diversity with achieving a better allocation of social housing by reducing support to those whose circumstances have improved should be explored.
Trade-offs need to be considered, when incentivising better-off tenants to move out of social housing. On the one hand, efforts to better manage resident “throughfare” are driven by declining housing affordability, and housing equity concerns that would favour a more efficient allocation of social housing resources. On the other hand, if long-time tenants leave their dwellings, this can dampen community building and the accumulation of place-based social capital and can limit the potential for socially mixed communities. Denmark should consider mechanisms to rebalance the allocation of social housing away from better-off households, such as periodic eligibility reviews, fixed-term tenancies or indexing social rents to individual income, while protecting socioeconomic diversity.
Investment in social housing has been low in recent years, partly reflecting a cost cap for new social housing buildings, which can be binding, especially in cities, where construction costs have risen sharply (Danish Ministry of Social Affairs and Housing, 2024b). In Copenhagen City, only 5 000 social housing units were built between 2014 and 2023 as compared to 30 000 private rental units and 12 000 owner-occupied units (submission by Copenhagen City). While essential for containing rent levels in new buildings, the cost cap legislation provides little flexibility for building new housing, especially affecting the capital region. The maximum budget per square meter is set between EUR 3 000 to 4 000, depending, for instance, on the size and type of housing unit. This leads to an increasingly difficult task for affordable housing associations to find contractors for new residential housing projects. To ease the strain in the capital, the government and the City of Copenhagen have entered into an agreement, that will increase the share of social housing to 40% in new residential areas. As part of the housing agreement, DKK 10 billion was allocated to the Fund for Mixed Cities, that was established in 2021 (Danish Ministry for Social Affairs and Housing, 2022). Apart from targeting more social housing in the capital region, the Fund for Mixed Cities supports land purchase loans for new social housing projects, the conversion of private rental properties and commercial buildings into social housing, the establishment of particularly affordable social housing and the densification of social housing (Danish Ministry of Finance, 2024). In addition, it is planned to increase the cap on construction costs, which should be implemented and its effectiveness monitored.
4.5.2. Despite considerable policy efforts, homelessness has not come down
Homelessness is the most extreme form of housing and social exclusion. The number of people living rough or in temporary accommodation is 6 out of 10 000 in Denmark as compared to 5.5 in Sweden, but it is considerably higher than in Norway (2.6) and Finland (1.6) (OECD, 2025a). On the other hand, it is considerably lower than in France or Germany. The number of people experiencing homelessness rose steadily between 2009 and 2019 and has remained stable since then at about 6 000 persons (Benjaminsen, 2024). Homelessness is concentrated among a small population with multiple needs, rather than being associated with poverty and deprivation as is the case in some other countries. Evidence provided by an analysis of homelessness collected every two years suggests that people experiencing homelessness are those who are not reached by the extensive social protection system (Benjaminsen, 2023).
Denmark applies best practice by implementing a Housing First approach, with the aim of eradicating long-term homelessness. Housing First provides tailored support for people experiencing homelessness with high and complex needs by providing them with immediate housing and enabling them to exercise control over their support services. Since the Danish Homeless Strategy started, there has been a continuous focus on spreading the Housing First approach. With the Action Plan to Combat Homelessness (2018-2021), national guidelines were issued with recommendations for best practice (Danish Ministry for Social Affairs and Housing, 2021a). However, an evaluation of Housing First found large differences in the implementation by the municipalities. Municipalities have great autonomy and may not participate in the implementation of the strategy or implement only part of it. A questionnaire found that out of 81 (out of overall 98) municipalities that responded to the survey only 39 followed the Housing First strategy (Danish Ministry for Social Affairs and Housing, 2021a).
While the Housing First approach is seen as working well, the scaling up of the programme has been lacking. Data suggest that less than 10% of the people experiencing homelessness are reached by the Housing First strategy (Danish Ministry for Social Affairs and Housing, 2021a). This is partly due to the incentives by the municipalities, which have to shoulder a large part of the cost and the complexity of co-ordinating several municipal and regional services. There is potential to use the municipal referral system to social housing better: there are about 600 000 social family homes, of which municipalities have the right to allocate 25%. Around 20 000 of these have a rent of less than DKK 3 500 per month, but in 2020, the municipalities allocated just under 12% of the vacant social housing with a rent of less than DKK 3 500 per month (FEANTSA, 2021).
However, since October 2023, national Danish legislation aims at significantly decreasing the number of homeless persons and ending long-term homelessness. The amendment provides municipalities with better incentives to find affordable housing more quickly for people who otherwise stay in shelters. For example, this is achieved by reforming the reimbursement scheme so that state reimbursement, following a short stay in a shelter, shifts from covering costs associated with long-term shelter stays to supporting individuals in their own homes. As a result, reimbursement for shelter stays is now limited to 120 days per person per year, with a planned reduction to 90 days per person per year starting in 2028. Additionally, the state reimburses 50% of the municipalities’ expenses for providing support under the Housing First methods to individuals living in their own homes. The agreement “The Fund for Mixed Cities – More Affordable Housing and a Way out of Homelessness” from 2021 also provides 4 050 affordable homes that can be used for Housing First initiatives aimed at citizens experiencing homelessness or at risk of homelessness. Many other activities supporting a nationwide implementation of Housing First are nationally funded for the years 2022-2025, amongst which is a national partnership entrusted with the task of monitoring the progress of implementing Housing First across the country. The national partnership with municipalities must investigate barriers to the implementation of Housing First in Denmark and annually report to the national authorities on the matter. Whether the sharpened focus on implementation will reduce homelessness will become clearer with the next homelessness survey in 2026. Co-operation agreements on homelessness with more municipalities would help.
4.5.3. There has been progress with urban regeneration
Despite the universalist approach to social housing, segregation is a long-standing problem in Denmark. As in most Nordic countries, there is a link between the concentration of social housing in certain neighbourhoods and the overall level of ethnic and economic segregation (OECD, 2020). There is a wide-ranging literature on neighbourhood effects, which suggests that living in poverty-stricken neighbourhoods can have negative effects on outcomes such as income, health, education and general well-being. There is also evidence that such effects harm especially children. This may lead to an intergenerational neighbourhood effect: a vicious circle of exposure to poverty between generations where children are affected by where their parents lived can develop and subsequently this can affect their own children later in life (OECD, 2018).
In general, there are three types of policy responses to segregation by socio-economic status: place-based policies, people-based policies and connectivity-based policies. Place-based policies mainly focus on the physical upgrading of deprived neighbourhoods. By demolishing large social housing estates and rebuilding more mixed housing, the socio-economic mix of households can be influenced. Place-based policies require large investments, but within a relatively short period, a neighbourhood can be upgraded by replacing buildings and people. Such policies can only be successful if middle class households can be attracted to poorer neighbourhoods.
Place-based policies alone may be insufficient if they fail to address the underlying mechanisms that lead to persistent poverty. Investment in people and policies that establish equal opportunities are also needed. People-based policies focus on areas such as education and employment. Education introduces people into new networks affecting partner choice, job matching and finally residential choices. Obtaining a higher level of education will also help to reduce intergenerational transmission of living in deprived neighbourhoods. In addition, connectivity-based policies focus on lowering barriers for people living in low-income neighbourhoods to travel to jobs or schools in other parts of the city (OECD, 2018).
Several OECD countries have specific urban regeneration programmes that try to address the issue of a high concentration of social problems in certain urban areas. In Denmark, policy first attempted to make such areas more attractive without trying to directly influence the social composition of tenants but then recognised that the composition of tenants may have an important impact as well and therefore launched measures to improve social diversity (Erlandsen, E., J. Lundsgaard and F. Hüfner, 2006). There has been a long-standing concern in Denmark that some areas lack social diversity or feature concentrations of deprivations of migrants. A ‘ghetto list’ was first introduced in 2010, which identified deprived areas as ghettos based on the residents’ socioeconomic characteristics. It only concerned public housing areas with at least 1 000 residents. The aim was to give municipalities and social housing associations an incentive to change the residential composition of the areas to avoid being on the list (Skovgaard Nielsen, R. and S. Kromhout, 2023) and did not automatically trigger any measures or funds. On the other hand, several social programmes were launched to improve the share of people in education and employment, to reduce crime and raise safety in socially disadvantaged neighbourhoods. These national programmes top up municipal services in these areas.
Several initiatives have been launched to create mixed neighbourhoods by providing social housing, including in the country's most expensive residential areas. The mixing of groups of different social, economic and ethnic backgrounds can lead to better mutual understanding, more trust and greater solidarity. Social mobility and migrant integration are easier to achieve when people do not live in segregated areas or communities (Box 4.4). A key OECD recommendation in this respect is to promote inclusionary zoning (Moreno Monroy, A. et al., 2020). Under inclusionary zoning, private developers are either required or incentivised to incorporate social housing in new site developments. For instance, the French Social Housing Act implemented a social housing minimum quota of 20% in every municipality in urban areas, and municipalities that do not comply with the 20% minimum are fined. Likewise, some German cities have a social housing quota in place for land use allocation (OECD, 2021b).
While large social housing estates can concentrate deprivation of some social groups, smaller projects tend to decrease segregation as they are more likely to disperse social housing residents in different areas.
Denmark relies on incentives in promoting inclusionary zoning. A provision was added to the Danish Planning Act in 2015 to promote diversity through the option of planning for the establishment of more non-profit housing in cities. The land on which inclusionary housing projects are built is mainly owned by housing associations making them both developers and long-term operators post-completion. In addition, municipalities with high growth in the population can subsidise land purchases. Since 2015, the Planning Act includes also a provision that allows municipalities to require that up to 25% of the housing stock in a new residential area must be social housing (Granath Hansson, A. et al., 2025). The implementation of inclusionary zoning is optional for the municipalities.
An evaluation of the 2015 Planning Act by the Danish Housing and Planning Agency provides a summary of the use of the 25% regulation in local plans from 2015 to 2020 and shows that, out of about 1 700 local plans, only 45 included a demand for a percentage of non-profit housing. Within the 45 local plans with non-profit requirements, 10 400 new homes were built and of these just 635 were non-profit units. Apart from adverse incentive effects of private developers that are required to sell a piece of land to a competing social housing association, municipalities are also resistant fearing that the municipal tax base could be eroded and concerns that developers will choose to build elsewhere (Granath Hansson, A. et al., 2025).
To scale up inclusionary zoning, the government established the Fund for Mixed Cities, which will fund the conversion of private rental housing into social housing and the conversion of commercial properties into social housing between 2022 and 2035. It also includes a land purchase loan scheme that will enable social housing organisations to purchase building land in areas with high land prices (Danish Ministry for Social Affairs and Housing, 2021).
Denmark launched a further wide-ranging initiative in 2018 aiming to address vulnerable residential and “parallel society” areas. Four criteria are used to identify such areas among social areas with at least 1000 inhabitants and at least two of them must be met. These are areas where more than 40% of the population is without employment, the crime conviction rate that is three times the national average, an average gross income, which is less than 55% of the average gross income for the same group in the region and the proportion of residents aged 30-59 who only have a basic education exceeds 60% of all residents in the same age group. A “parallel society” is defined by the same criteria but also includes that the proportion of immigrants and descendants from non-Western countries should not exceed 50%. DKK 10.5 billion were prioritised in the National Building Fund for the conversion of these residential areas via renovation, demolition, new infrastructure, social housing initiatives and rehousing of residents. In residential areas characterised as parallel societies in the past five years the proportion of social housing must be reduced to a maximum of 40% of the current number by 2030.
A new category for residential areas in need of preventive measures, which was introduced in 2021, includes social housing areas with at least 1 000 residents, where the proportion of immigrants and descendants from non-Western countries exceeds 30%. The labour market, education and crime criteria are less strict then for the vulnerable areas. Municipalities are no longer allowed to assign foreigners who are not citizens of Denmark or the EU, EEA and Switzerland to prevention areas. These rules also apply in the vulnerable neighbourhoods (Danish Ministry for Social Affairs and Housing, 2024). The policy is largely funded by the National Building Fund, which finances the costs of demolitions, and supports infrastructure investments. The Fund also partly funds the development of 89 social master plans that are co-financed with municipalities to support interventions linked to security and crime prevention, well-being, education and employment, and parental support (Landsbyggefonden, 2025).
The implementation of the policy has advanced rapidly. The number of vulnerable residential areas and parallel society areas has fallen considerably between 2018 and 2024 (Table 4.2). However, there were still many children in the 12 “parallel society” areas in 2023 who grow up with parents who are not working. A relatively high proportion of pupils attend primary schools, where many pupils are of non-Western origin, and the average grade in the parallel society areas is lower than in the rest of the country (Danish Ministry of Social Affairs and Housing, 2024a). In 2024, there were still 17 residential areas that are covered by development plans between municipalities and housing organisations.
The development plans indicate how the proportion of social housing will be reduced to 40% by 2030. There are many tools to reduce the proportion of social housing, including new construction of both private and commercial units, conversion to social housing for young people or the elderly, and demolition and sale of existing housing. New construction is the most commonly used tool in the development plans. Demolition and sale are being used strategically where it is deemed necessary for the development of the area (Danish Ministry of Social Affairs and Housing, 2024b).
Demolitions are expensive and can up-root people. Living among similar people can have major benefits as it can reduce conflict, give people a sense of safety, and foster social networks. Living in enclaves with people with similar preferences, needs, and lifestyles can also have the benefit of shared services and facilities (OECD, 2018). Reducing segregation by socially mixing neighbourhoods will have some effects on inequality and social mobility, but directly reducing social disadvantages through education, employment and housing policies seems to be the most efficient way. While many programmes exist already, the previous Survey stressed that there are several policy areas with room for improvement (OECD, 2024). These concern insufficient language skills of migrants, which are crucial to obtain employment, problems with the transferability of qualifications, which reduces chances of becoming employed and housing policy. It concluded that, while significant housing investment in the most challenged areas is necessary, having a close eye on addressing the underlying issues could be more fruitful.
Note: Conversion areas replaced the previous hard ghetto areas. It is a residential area that has been a parallel society area for five years.
Source: Danish Ministry for Social Affairs and Housing, 2022; Danish Ministry for Social Affairs and Housing, 2024a.
4.6.1. There are indications that housing supply is sticky, especially in Copenhagen
Given the growing and changing demand for housing, a slow response of new housing to demand changes can raise price pressure. Housing supply responds to changes in demand, such as from population and income growth, quite differently across countries (Figure 4.10). In Denmark, dwelling stock growth has outpaced population growth only by a slender margin, with housing supply hampered in urban growth areas and ample housing supply in lagging regions.
Difference between population and dwelling stock growth
Note: OECD calculations using data on annual population and the number of dwellings over 2000-22 (or latest available year).
Source: OECD (2025), OECD Economic Outlook: Statistics and Projections (database); and OECD calculations.
Land-use regulation plays an important role in housing supply, but it can be hard to assess because Denmark, as most OECD countries, sets these at the municipal or regional level, while the national government is predominantly involved with setting guidelines and general principles (Cavalleri, M., B. Cournède and E. Özsöğüt, 2019). Similarly technological or natural constraints, such as the coastal location of Copenhagen and its many protected green areas are difficult to assess. The supply response of housing investment to house price developments can be gauged by the elasticity of housing supply to house price increases. A sufficiently elastic supply ensures that the economy responds to housing needs in a timely manner without large price increases, thus underpinning housing affordability. For Denmark, the estimated elasticity of housing supply with respect to housing prices is high in low density regions but very low in the capital region (Figure 4.11). In Copenhagen, housing construction has not kept pace with population growth since 2009, partly reflecting strong population growth. In the rest of the country, housing construction and population growth have been more closely aligned over the past 15 years. With population growth outpacing housing construction, upward pressure on house prices in the capital municipalities has become very strong: owner-occupied apartments in Copenhagen were 17% more expensive in April 2025 than in the same month last year (Danmarks Nationalbank, 2025). Price increases were smaller in other large urban municipalities, such as Odense, Aarhus and Aalborg.
Note: Estimates based on Bétin and Ziemann (2019). Long-term supply elasticities are derived from inverse supply elasticities obtained by regressing changes in real house prices (from 2003 to 2017) on long-run changes in residential construction proxied by local population and instrumented using exogenous labour demand shifts and fertility rates.
Source: OECD Housing Policy Toolkit (housingpolicytoolkit.oecd.org); and Bétin, M. and V. Ziemann (2019), “How responsive are housing markets in the OECD? Regional level estimates”, OECD Economics Department Working Papers, No. 1590.
The effect of supply constraints is also illustrated by the fact that the number of two-room apartments in 2024 was the same as in 1981 in the Copenhagen region. This is partly due to urban renewal efforts that led to demolitions and apartment consolidations as well as the legacy of earlier minimum apartment size rules. It comes against the background of increasing demand for smaller units as the size of households has been declining due to ageing and the rising number of single families (Submission by Boligøkonomisk Videncenter). Demand was also pushed by short-term rentals aimed at tourists, though the effect on rents is difficult to assess because of a lack of detailed data.
A lack of density contributes to housing shortages. The functional urban areas in Denmark show a relatively low density, similar to Sweden (Figure 4.12, Panel A). This partly reflects the many protected green areas and building restrictions. Density is also low in most English-speaking countries, but much higher in most other European countries, where the size of functional urban areas is also smaller (Figure 4.12, Panel B). In the Copenhagen region, the land-to-building ratio is low in many areas near stations in the suburbs (Copenhagen Economics, 2018), despite the longstanding “Finger Plan” that aims to focus housing around the five main transport lines heading out from the centre of the city.
Note: OECD calculations. FUA refers to functional urban areas which are defined by the OECD as densely inhabited cities and their surrounding commuting zones. High-density land is defined as grids with population density above 3500 persons per km². The average region for each country is shown.
Source: Bétin, M. and V. Ziemann (2019), “How responsive are housing markets in the OECD? Regional level estimates”, OECD Economics Department Working Papers, No. 1590.
The Building Act provides a range of detailed regulations for construction and influences density. The Ministry of Social Affairs and Housing can lay down rules on minimum plot sizes for properties, building percentages in connection with the development of properties, height and number of storeys for buildings, and minimum distance for buildings to boundaries with other land or paths. As an example, the buildings ratio is defined as the floor area as a percentage of the plot area. A local council may not refuse to approve the floor area of a building when the building ratio does not exceed 60% for multi-storey buildings and 40% for fully or partly integrated single-family houses etc. and similar low, adjacent buildings. The building regulations can also lay down rules on the relationship between the height of a building and its distance to roads, neighbouring boundaries and other buildings on the same plot to ensure satisfactory building distances and lighting conditions. In the absence of a local plan or regulations in the municipal plan concerning the specific area for development, the developers must comply with the general building provisions of the Building Act (Galland, D., 2022). Building restrictions in priority areas close to transport links should be relaxed to increase density, which would boost housing supply.
4.6.2. Governance and incentives of municipalities matter
A shared trend across the OECD has been to allocate more housing policy responsibilities to the local level (OECD, 2021a). This has also generally been the case in Denmark. The capital region is an exception as the Planning Act provides specific planning principles for this region based on the Finger Plan with a special focus on transport infrastructure and the preservation of the green wedges. The municipalities in this region have nevertheless much leeway in land use planning (Danish Ministry of Urban and Rural Affairs, 2024).
The current organisation of spatial planning emerged from the local government reform in 2007, which generated a major redistribution of tasks and responsibilities between the central government, the five regions and the 98 municipalities. Since then, spatial planning tasks and responsibilities have been shared between the national and municipal level, with the regions having limited competencies. The central government sets overall guidelines for planning and regulates priority policy areas through national legislation. The municipalities are responsible for spatial planning through municipal and local plans (Galland, D., 2022). The 2017 Planning Act decreased the involvement of the state in spatial planning and of the state’s power to object to municipal plans (Olesen, K., 2023).
The Planning Act divides the country into three zones: urban, rural, and summer cottage areas, which are governed by specific rules. A major aim of the Act is to protect the countryside by avoiding urban sprawl and unplanned development. Through zoning, the Planning Act establishes clear boundaries between urban areas and the countryside, protects recreational landscapes, and prioritises agriculture and forestry in rural zones. Development is normally allowed in urban and summer cottage areas provided there is compliance with the regulations. However, development in rural zones and any change of land use for purposes other than agriculture and forestry are either prohibited or subject to a dispensation from the municipal authority.
Land-use governance arrangements that avoid overlap in the allocation of housing policy functions across the different levels of government and favour planning at the metropolitan level rather than lower levels of government can facilitate the matching of supply and demand within broader catchment areas (OECD, 2021a). Countries where land-use regulation decisions are more decentralised often have stricter planning regulations, as local homeowners can more effectively lobby for a restrictive planning stance, like height restrictions, that increase the value of their house. Countries where several government entities are involved in land planning tend to be more stringent than those where fewer entities are involved because each entity can potentially exercise a veto, object or delay housing projects (Cavalleri, M., B. Cournède and E. Özsöğüt, 2019). In Denmark, land-use regulation is fragmented (Figure 4.13) as land use regulation is largely exercised at the local level, while several ministries and agencies are involved in providing the overall land-use regulation framework (Ministry of Social Affairs and Housing, Ministry of the Environment and the Ministry of Urban and Rural Affairs).
Land-use governance indicator, 2019
Note: The indicator measures the restrictiveness of land use regulation. It comprises two components: decentralisation and overlap of government levels in land planning decisions. High values indicate fragmented decision making and/or overlap across levels of government. OECD calculations based on OECD Questionnaire on Affordable and Social Housing (QuASH, 2019).
Source: OECD Housing Policy Toolkit (housingpolicytoolkit.oecd.org).
It would be better to coordinate and implement housing policies through spatial planning across functional urban territories, because they often transcend historic administrative boundaries. This is because measures to increase housing supply, to support certain groups of the population or improve housing quality can create trade-offs for interconnected neighbouring areas. For example, measures to restrict housing supply in commuting towns within functional urban areas can put additional pressure on city centre affordability (OECD, 2023]).
A study focused on the Copenhagen region, where housing pressures are most intense, identified areas, such as brownfield developments, which have not yet undergone urban development, but which hold considerable future potential (Copenhagen Economics, 2018). These areas should be developed without compromising important constraints, such as the preservation of green areas and demands for increased infrastructure among others. Urban densification is another strategy by building more dwellings in areas that have already seen urban development. This should be done by filling the gaps between existing buildings or through extensions to the existing building stock and relaxing building restrictions, even if modestly (see above). Copenhagen is also using land reclamation for raising housing supply (Box 4.5).
A large-scale construction project in Copenhagen's East Harbor is building a new island. Lynetteholm will ultimately provide space for around 35 000 inhabitants and the same number of jobs. 20 000 homes will be built (2.4 million residential square meters). A quarter of it will be social housing. The project is expected to be fully completed by 2070. It is served by a new harbour tunnel and metro. The main actor in large development projects in Copenhagen, such as Lynetteholm is By og Havn (City and Port) owned by the City of Copenhagen (95 %) and the Danish state (5 %). The uplift in value is being used to finance public infrastructure such as metro lines.
The construction of Lynetteholm will make it easier to protect Copenhagen against flooding. The project will raise housing supply in Copenhagen, thereby containing prices in the city and adjacent areas. Gains also include reduced commuting cost and leisure gains. While the long-term gain is considerable, the project will not provide relief from the housing shortage in the next years.
Source: University of Copenhagen, 2022.
The study by Copenhagen Economics (2018) suggests that urban densification would require major changes to existing legislation and political processes as well as substantial private and public investment. Financial and political incentives are two principal problems: Expectations of increasing housing and land prices can act as an incentive for private and public landowners to postpone the sale of land for urban development. Municipalities have economic incentives for attracting only specific residents, for example by primarily zoning new areas for single-family houses, which leads to urban sprawl. It is difficult to achieve a coherent regional development, when the municipalities are competing to attract the same groups of newcomers. Therefore, planning should take place at the functional urban area level.
Urban development leads to substantial investments and costs. Every time areas are zoned for urban development, the municipalities face costs associated with new infrastructure and development of the area, and these costs must be covered by the existing construction budget. Municipalities have little financial incentive to allow housing construction on privately owned land as they bear a large part of its economic and political costs, for example by having to provide the needed infrastructure or overcome opposing interests of existing parties against additional buildings. Development of new land areas requires often investments in technical infrastructure (roads, water and sewage system) and social infrastructure (schools, child-care facilities). A developer and a municipality can make a deal regarding the provision of infrastructure – this is known as an expansion agreement. However, it is not legal for a municipality to contact the developer and put pressure on the company to establish such a deal. The initiative must come from the developer (Submission by Boligøkonomisk Videncenter). More leeway should be given to municipalities to strike such agreements.
4.7.1. Progress with emission reductions has been impressive
Denmark has ambitious targets for greenhouse gas emissions reductions, including reaching climate neutrality by 2045 (Chapter 2). In the housing sector, in 2022, the Agreement on Green Power and Heat included the political ambitions for phasing out gas use in domestic heating by 2035 and for 100% ‘green’ gas by 2030 as well as conditions that can enable a fourfold increase in the production from renewable energy on land by 2030 (IEA, 2023).
Housing emissions emanate from space and water heating, cooling, ventilation, lighting and the use of appliances and other electrical plug loads, as well as construction of homes, which contributes more than 5% to overall CO2 emissions, largely reflecting the heavy use of concrete and steel (IEA, 2023). CO2 emissions by the residential sector in Denmark are relatively low compared to other OECD countries (Figure 4.14, Panel A). As other Nordic countries, it is able to achieve low per capita emissions despite high incomes and a cold climate, primarily through electrification of energy consumption at home coupled with relatively green electricity production. In addition, Denmark has a very high share of district heating.
Among the OECD countries, Denmark stands out for having achieved the steepest decarbonisation of the residential sector as CO2 emissions have declined by more than 60% in the last 20 years (Figure 4.14, Panel B). This drop is due to a drastic reduction in carbon intensity, mainly due to a shift from coal and natural gas to less polluting generation systems relying on electricity production via renewable resources such as wind power and biomass. Since the late 1990s, Denmark has pioneered gas-powered district heating networks, recently upgraded at a relatively low cost to biomass and waste-powered primary energy sources (Box 4.6). On the other hand, energy efficiency gains (per capita energy use) have contributed little.
Denmark is the district heating champion among the IEA member countries. District heat represents the main source of residential spatial heating, covering two out of three dwellings.
Over the years, the fuel mix of heat generation has evolved. High shares of natural gas and coal in 2011, together accounting for 50%, decreased to just 16% in 2021, replaced by an increasing share of large-scale heat pumps and biomass (e.g. woody biomass and straw). While there are climate benefits from shifting from fossil fuels to woody biomass, there can also be emissions from land use change and woody biomass may not be carbon neutral from a lifecycle perspective (Chapter 2). In 2024, Denmark tightened the sustainability requirements for biomass for energy producers, importers and producers of wood fuels. In 2022, the central government and Local Government Denmark (KL) made an agreement on accelerated planning for phasing out gas for domestic heating. The agreement includes the ambition to roll out district heating where it makes economic sense by 2028. Moreover, Denmark has the political ambition to phase out the use of gas for domestic heating by 2035.
The first district heating network was established 120 years ago. The expansion of district heating took off as a result of the oil crisis in the 1970s, where the focus was on using the surplus heat from electricity production through combined heat and power production. Co-generation helps to ensure security of supply, because combined heat and power plants provide the necessary balance so that people have access to electricity when they need it. When there is a lot of green energy and the electricity price is low, the district heating sector’s electric boilers and heat pumps can produce heat that can either be used immediately or directed to thermal storage and used for later heating. The district heating system is thus also an energy storage system. When the electricity price is high, the district heating sector can turn off its electricity-consuming units and produce electricity at thermal combined heat and power plants.
District heating production is decentralised, as production is generally in the vicinity. A district heating system makes it possible to use differences in the consumption patterns of heat consumers, which means that less capacity is needed compared with individual heating (typically down to about 60% of the sum of the corresponding individual heating requirements).
Given the wide variation of district heating prices, the government introduced a price cap in 2024, which is based on the cost of heating with an individual heat pump. An overview of the companies that are above the price cap will be published and these companies must make a plan explaining how they will reduce their prices below the cap.
Source: (IEA, 2023[43]); (Danish District Heating Association, 2024).
Note: OECD calculations. In Panel A, the breakdown between direct and indirect emissions is based on the proportion of final residential energy used from electricity and district heating. The OECD aggregate refers to the unweighted average of 35 countries with available data. In Panel B, carbon intensity refers to CO2 emissions per unit of energy used.
Source: IEA (2025), IEA Energy End-uses and Efficiency Indicators; and IEA Emission Factors 2024 database.
4.7.2. The green tax reform and other measures will reduce emissions from buildings
CO2 taxation is advancing
As discussed in Chapter 2, Denmark relies heavily on carbon pricing and taxation to reduce emissions in an efficient and consistent way. Net effective carbon rates on buildings in Denmark are among the highest in the OECD (Figure 4.15) and the carbon price of indirect emissions via electricity consumption is considerable. Only a few countries, including Denmark, have so far achieved a net effective carbon rate for buildings above EUR 120 per tonne of CO2, the central estimate for carbon costs in 2030 (IEA, 2021). This is already well above the price initially envisaged in the EU ETS2 scheme that will cover buildings from 2028 onward (European Commission, 2025).
Excise taxes on the energy content, rather than carbon taxes and emission trading dominate in the building sector. In Denmark, the size of the fuel excise tax component was large as compared to the carbon tax component. However, Denmark is implementing a green tax reform, which is expected to deliver a large contribution to Denmark's 2030 climate goals. The reform provides for higher and more uniform taxes on CO2 emissions. Part of the tax reform was implemented in 2025 with a phase-in until 2030. In a first step the CO2 tax for home heating increased from EUR 20 to 100, while the energy tax, which was based on the energy and not the carbon content was reduced by the same amount. The very energy-intensive sector of non-metallic mineral products (cement and brickworks), which accounts for more than 25% of total emissions from industry, pays a carbon tax of EUR 13 per tCO2. The new system streamlines the multiple taxes on energy and fuels, placing the focus on CO2 content instead of the energy content of fuels (IEA, 2023). This is welcome because a tax base that reflects the carbon content of fuels, provides better abatement incentives for given tax receipts. How the Danish scheme will be integrated with the EU ETS2 scheme has not been decided yet.
Net effective carbon rate and its coverage of greenhouse gas emissions, 2023
Note: The net effective carbon rate is composed of emission trading prices, carbon taxes, fuel excise taxes minus fossil fuel subsidies. Data are expressed at 2023 constant prices. For some countries, the effective carbon rate for buildings was strongly influenced by subsidies during the energy crisis.
Source: OECD (2025), Net effective carbon rates (database); and Shares of emissions priced (database); and OECD (2024), "Pricing Greenhouse Gas Emissions 2024: Gearing Up to Bring Emissions Down", OECD Series on Carbon Pricing and Energy Taxation.
Labelling, certification and regulation are essential complements to carbon pricing
While labelling and certification provide essential tools for making well-informed choices, standards and regulations can also help overcome market imperfections, such as the split incentive problem and enforce the upgrading of new housing equipment and appliances. They can complement emission pricing and be very effective in certain cases, although there is a risk of blurring price signals (D’Arcangelo, 2022).
Market imperfections imply that owners and tenants may not undertake profitable investments, for instance, to raise energy efficiency. A particular problem is the split incentive problem: Tenants usually have limited options to react to higher energy costs. If landlords invest in raising energy efficiency, tenants enjoy the benefits in terms of lower energy costs or greater comfort. There are often only limited options in rental contracts to pass on investment costs into higher rents. Moreover, homeowners have a longer time horizon for energy-saving investments, whereas tenants focus on the short-term benefits of home improvements. Incentives for energy savings are sharper for homeowners because they face the costs and benefits of their decisions. Similar problems arise for houses with several apartments (Box 4.7). It would be important to investigate, whether the voting rules should be relaxed in Denmark as was done in Belgium or Austria, to accelerate the pace of renovation in multi-apartment buildings.
In Denmark, three quarters of rental and cooperative dwellings consist of multi-storey dwellings. In the case of multi-ownership, typically, a building management company is charged with the maintenance and repair of common areas, the building envelope and utility installations while also coordinating decisions by the owners about energy efficiency improvements. While maintenance and repair decisions are usually paid out of an accumulated fund, other decisions need voting by the apartment owners on an investment proposal by the building management company.
Strict voting and financing arrangements exist in many countries (Table 4.3). In the Dutch case, for instance, 70% of the occupants need to agree on such a proposal. Some countries have eased the voting rules recently: Belgium reduced the required voting shares from 3/4 of the votes to a 2/3 majority, while Austria reduced a 2/3 majority to a simple majority or a 2/3 majority of the votes that cover at least 1/3 of the owners.
Note: Simple majority stands for 50% + 1 vote.
The German government has pursued an innovative approach to overcome the split incentive problem. In 2021, Germany introduced a carbon tax on heating in the buildings sector. In 2022, the government announced that the carbon tax liability would be split between landlords and tenants depending on the building’s emission performance. Tenants in low-emission housing will bear most of the tax, while landlords will be liable for most of the additional tax for carbon-intensive rental dwellings. This measure reduces the carbon tax burden of tenants and encourages landlords to undertake investments to improve the emission performance of their homes while still providing incentives to tenants to reduce their carbon footprint.
Source: Hoeller, P. et al., 2023.
Renovation should be underpinned by information on the energy performance of buildings. As in the rest of the European Union, for buildings and appliances, a colour-letter rating on a scale from A to G applies in Denmark. Energy performance certificates are a key tool to encourage renovation and assess the performance of existing and new buildings. Of buildings with energy performance certificates (EPCs) in the residential sector more than half is rather energy inefficient and in need of renovation (IEA, 2023). The energy label must always be visible when selling, renting out or transferring a building or building unit. However, in the City of Copenhagen, there are still 20% of buildings (in terms of m2) that do not have an energy performance certificate (Submission by the City of Copenhagen). It would be useful to make energy performance certificates mandatory and to focus renovation efforts on the buildings with the worst CO2 emission performance. In France, for instance, the French Haut Conseil pour le Climat suggested that the renovation of the worst-performing houses (F and G), where energy efficiency gains are largest, should be promoted. In addition, the French Parliament decided that French apartments of the worst-performing category G can no longer be rented (Hoeller, P. et al., 2023).
The energy efficiency standards of new buildings are of great importance because of the long life span of buildings. The CO2 limits for new buildings are being progressively reduced by about a third between 2025 and 2029 (Danish Ministry for Social Affairs and Housing, 2024b). To promote renovation rather than demolition, the requirements for the conversion of existing buildings were relaxed. Reused building materials were assigned a value of zero in climate impact calculations to encourage the use of reused components and materials (OECD, 2025d). A limit for the climate impact that arises from transport to, from and on the construction site, as well as from energy and fuel consumption and material waste on the construction site, was set.
Subsidies need to be carefully designed
Subsidies and tax incentives can speed up the deployment of new technologies by overcoming the upfront cost barrier since they can directly fill an immediate financial gap. But funding such subsidy schemes implies raising additional tax revenues now or in the future and dead-weight losses can be high.
The Danish government has five subsidy schemes that aim at phasing out oil and gas boilers and boosting energy renovations: 1) the Heat Pump Scheme, providing subsidies to private individuals investing in a heat pump when replacing gas, oil, or wood pellet boilers, or electric heating; 2) the Energy Renovation Fund, providing subsidies to private individuals for specific types of energy renovations; 3) the Scrapping Scheme, providing subsidies for subscription-based heat pumps through pre-qualified providers, who deliver and install the heat pump at the customer's home and disconnect the existing oil, pellet, or gas boiler; 4) the Decoupling Scheme, providing a fee exemption on the disconnection for citizens decoupling from the gas grid; and 5) the District Heating Pool, supporting the roll-out of district heating in new areas.
To be efficient, the determination of subsidy rates presupposes knowledge of the costs and effects of the various measures. This knowledge is imperfect at best. Limited knowledge and uncertainty mean that it is difficult to set subsidy rates that provide the right incentives. Thus, subsidies are not likely to provide incentives for cost-effective reductions. Calculations by the Environmental Council suggest that if subsidies are used, it will be significantly more expensive to live up to the 2030 emission reduction target. Model simulations suggest that the socio-economic costs will probably be at least three times as high as if the goal is achieved with a uniform tax (Environmental Economic Council, 2020[51]). This calls for close monitoring of subsidy schemes from their introduction to their termination. Support schemes should alleviate liquidity constraints and prioritise low-income and vulnerable groups living in the most energy inefficient dwellings.
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