Housing construction falls to its lowest level in over a decade: What this means for Norway’s economy in 2026
Skrevet av Frode Skar Finans Journalist.
Image description for Sora: Half-finished apartment blocks and idle construction cranes in winter light, conveying a sober and serious economic atmosphere.
Housing construction in Norway has dropped to its lowest level in more than ten years as the country enters 2026. New figures show a sharp decline in housing starts following a prolonged period of high interest rates, rising construction costs and weaker demand. The development marks a clear turning point in the housing sector, with consequences extending far beyond construction and real estate.
Where housing construction previously acted as a key driver of economic activity, the sector now appears to be a drag on the Norwegian economy. This is happening at the same time as population growth continues and underlying housing demand remains high.
Housing construction
Housing construction reflects both household purchasing power and developers’ confidence in future demand. In 2026, the signals are unambiguous: uncertainty is high, and risk is considered too great to initiate new projects.
The number of building permits and housing starts has fallen sharply over the past year. Many projects have been put on hold, while others have been cancelled altogether. The downturn is particularly pronounced in major urban areas, where price levels and cost pressures are most challenging.
Reasons behind the decline
The primary driver of the decline is the high level of interest rates. Financing costs have risen significantly for both developers and homebuyers, reducing the profitability of new projects.
In addition, construction costs have increased sharply in recent years. Higher prices for materials, energy and labour have squeezed margins in the construction sector, while sales prices have not risen at the same pace.
Stricter credit conditions and increased uncertainty around households’ ability to service debt have also made banks more cautious about financing new housing developments.
Consequences for the housing market
In the short term, reduced housing construction limits the supply of new homes. This may help to soften price declines in certain areas, despite weak demand.
Over the longer term, the risk of housing shortages increases, particularly in regions experiencing population growth. When demand eventually recovers, a lack of new supply could lead to rapid price increases and mounting pressure in the rental market.
Rental prices have already shown signs of rising in several areas, disproportionately affecting households with weaker financial positions.
Effects on household finances
For households, lower housing construction means fewer options in the housing market. First-time buyers are especially affected, as new-build homes have often served as an entry point into homeownership.
At the same time, higher rents and limited supply make it more difficult to save for a down payment, reinforcing inequality between those who already own homes and those who do not.
For existing homeowners, reduced construction activity may provide some price support, although broader economic uncertainty keeps many households cautious.
Impact on the construction sector
The construction industry is directly affected by the downturn in housing construction. Lower activity levels lead to layoffs, bankruptcies and reduced investment in capacity and skills.
This may have lasting consequences. When the market eventually turns, shortages of labour and capacity could contribute to renewed cost pressures and delays.
Macroeconomic ripple effects
Housing construction has traditionally been an important engine of the Norwegian economy. When activity declines sharply, overall demand, employment and tax revenues are reduced.
At the same time, pressure on public finances increases through higher unemployment and weaker activity in related industries.
For Norges Bank, the situation complicates monetary policy. Lower housing construction points towards weaker economic growth, while inflation and a weak krone limit the scope for interest rate cuts.
Our assessment
The collapse in housing construction in 2026 is a serious warning sign for the Norwegian economy. While the downturn is a natural consequence of high interest rates and rising costs, it presents significant long-term challenges.
The risk of future housing shortages is increasing, while the construction sector itself is being weakened. For policymakers, the key challenge will be balancing financial stability with the need to ensure sufficient housing supply.
Housing construction will remain a critical factor to monitor throughout 2026, both for the housing market and for the broader trajectory of the Norwegian economy.
