Who should own a home? Balancing regulation and property rights

The government will soon present a housing policy proposal that is expected to focus on more private owner-occupied housing. To avoid potential legal implications of such reforms, the government will need to strike a balance between the planning needs of municipalities and private property rights. But can and should it be regulated who owns a home?

Understanding Danish planning law

The Danish Planning Act regulates local planning by municipalities, including requirements for the size, design and use of buildings. Municipalities can regulate the use of an area or a property in great detail, but they cannot regulate the conditions of ownership and use. This means that municipalities do not have the authority to require that a private residence must be owned by an individual rather than an investor, nor can they impose restrictions that limit the use of the property to a certain age group.

However, there are exceptions. In 2015, section 15 of the Planning Act was amended to allow municipalities to require that up to 25% of the housing stock in a local plan must be social housing. This provision has been widely used, especially in larger cities. As of 1 January 2024, a further amendment to section 15 of the Planning Act was introduced, giving municipalities the authority to stipulate in local plans that residential properties may only be rented out as private student housing.

Is it possible to amend the Planning Act? Yes

The current political proposals for amending the Planning Act would allow municipalities to require new housing developments to be built and sold exclusively as privately owned homes, prohibiting their use as rental properties. Legally, such a provision could be implemented, but it would be another exception to the general rule in the existing legislation.

The introduction of this additional exception would represent a significant intervention in private property rights.

It could potentially have a negative impact on property values, on the willingness and ability of investors to finance new construction projects and on the profitability and attractiveness of the wider property development market.

While arguments can be made for and against the extent of such an intervention, policymakers should focus on maintaining a balance between the legitimate planning needs of municipalities and private property rights. Otherwise, well-intentioned efforts to create more diverse urban areas could instead inhibit the development of new housing.

Is an amendment necessary and appropriate? Perhaps (not)

Amending the Planning Act to further restrict private property rights requires careful consideration of both need and impact. Less intrusive alternatives, such as adjusting building size regulations or providing financial incentives for first-time homebuyers – such as reducing or eliminating registration fees or increasing interest deductibility – could improve housing affordability and availability without imposing significant restrictions on property rights.

As the amendments to the Planning Act have yet to be proposed, we all eagerly await the government’s proposal.

At Gorrissen Federspiel, we continue to monitor the developments closely and offer advice to investors and developers navigating the complexities of municipal planning in Denmark.