Improved efficiency is another factor that explains the high level of profitability in the Norwegian business sector. At the same time, there has been an ample supply of foreign labour, which has probably had a dampening impact on wage growth. In addition, increased globalisation in general may have broadened the scope for Norwegian enterprises to relocate production to other countries if labour costs become too high. Such a development probably places some restraint on wage demands among workers in sectors where enterprises have such opportunities. Is it possible to sustain the combination of low employment and low wage shares? First, it partly depends on whether the positive supply-side conditions are sustained. There is probably symmetry here. Should the terms of trade deteriorate, productivity growth slacken and foreign workers return to their home country, the wage share will increase, profits fall and unemployment increase. Second, even without a reversal profits may fall and unemployment rise. The implications of this will depend on how far businesses, in their search for qualified labour, will stretch themselves in bidding up wages. This will also depend on how employees react and their adaptability as well as developments in benefit schemes and other social schemes. Long periods of rapidly rising property prices and debt can be a source of future instability in the real economy. Should monetary policy give weight to developments in property and credit markets beyond their impact on inflation? Low interest rates have fuelled the rise in property prices and debt accumulation.
A common method for imputing rent for owner-occupied housing is to apply the rent for a dwelling of an equivalent type, which is often referred to as rental equivalence. In addition to Norway, statistical agencies in Denmark, the US and Germany, among others, use imputed rent to calculate owner occupants’ housing costs in the consumer price index. The consumer price index is designed to measure price developments for a stream of goods and services. It is the service the dwelling provides that the consumer price index is to capture. House prices are more like asset prices, such as share prices or bond prices. It may nevertheless be interesting to look at the relationship between house price and rents, at least in theory. Let us assume that the rental market and home ownership market are in equilibrium. In this case, home rental prices will reflect the cost of owning a home. What is included in the cost of owning a dwelling? The cost of acquiring a home must obviously be included and the financing cost is determined by the interest rate. Norwegian households primarily finance home purchases with floating-rate mortgages. Long-term interest rates are still important because they provide information about developments in short-term interest rates over time. The long-term interest rate is therefore the most relevant rate. Housing depreciation also has a bearing on user costs. Moreover, the expected increase in the price of a dwelling represents a gain that must be deducted from costs.