A N A LYS I S Dr. Luise Noring, Ph.D. April 2025 Denmark’s Non-Profit Affordable and Social Housing Model The paper is part of the project titled “Affordable Housing: Best Practices from around Europe.”

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A N A LYS I S Dr. Luise Noring, Ph.D. Denmark’s Non-Profit Affordable and Social Housing Model When Denmark resumed centralized debt collection ­efforts in 2019 after a long administrative pause, thou sands of citizens found themselves facing unexpected and unexplained financial claims. Charlotte was one of them. In 2022, she was abruptly notified that she owed the state a substantial sum. When she asked for clarification, the Debt Collection Authority was unable to ­explain where the debt came from or how it had grown to such an amount. Nonetheless, they began garnishing her wages, up to 70% of her disposable income. The financial pressure became unbearable. Charlotte, a single mother to six-year-old Olivia, was forced to make drastic cuts and search for more affordable housing. They applied to several non-profit housing coopera tives, but the waiting lists stretched as long as ten years. Then, unexpectedly, her application was moved to the top of the list. Her academic background and professional career met the affordable and social housing ­diversity criteria, allowing them to relocate to a newly built apart ment near Copenhagen’s harbor. Though the move brought some relief, Charlotte still los es the majority of her income to repayments she doesn’t fully understand. The uncertainty remains, but at least now, she and Olivia have a stable roof over their heads. Picture alliance/ Westend61| Lily Solopova Denmark’s Non-Profit Affordable and Social Housing Model 3

Abstract Denmark’s private non-profit housing model provides a sustainable alternative by reinvesting surpluses into ­rental reductions, maintaining long-term affordability ­without external subsidies. This self-governing and ­ self-financing system not only ensures financial sustainability but also empowers tenants through democratic ­decision-making, fostering collective savings that support housing maintenance and future development. By removing housing from market speculation and placing it under tenant-driven governance, this model demon strates a scalable and adaptable approach for cities striv ing to balance economic growth with social responsibility. Introduction Municipalities are facing growing challenges in delivering affordable and social housing within a free-market frame work that prioritizes high-return private investments over social needs. With limited public funds and competing ­infrastructure demands, cities must explore innovative solutions to ensure adequate housing for low- and ­middle-income residents. Denmark’s private non-profit housing model is designed to provide long-term affordability and social stability. Housing associations operate as self-governed entities, ensuring that surpluses are reinvested into maintenance and new developments rather than distributed as profit. A crucial component of this system is the National Building Fund (Landsbyggefonden), which secures financial support for renovations and new housing projects, contributing to the model’s sustainability over time. Despite its well-established strengths, the system is under increasing strain. Demand for affordable housing has outpaced supply, leading to long waiting lists and exacerbat ing access challenges. In densely populated urban areas, particularly Copenhagen and Aarhus, escalating land prices and market-driven pressures further limit the availability of affordable units. Denmark has introduced municipal land trusts to remove land from speculative markets In response, Denmark has introduced municipal land trusts to remove land from speculative markets, ensuring that housing remains affordable in the long run. Additionally, cooperative housing models and alternative financing mechanisms are being tested to support non-profit housing expansion. Regulatory safeguards, such as zoning laws and rent controls, are also being reinforced to protect afford ability and sustain social housing investments. While Denmark’s non-profit housing sector remains a ­global benchmark, its future depends on expanding ­supply, adapting financial structures, and maintaining strong policy protections. Without continued reforms, the delicate balance between market forces and affordabil ity may ­become increasingly difficult to sustain. How Danish Affordable Housing is Financed Denmark’s private non-profit housing model is uniquely structured to provide long-term affordability and financial sustainability while ensuring housing remains accessible to low- and middle-income residents. The model operates through a combination of municipal loans, tenant contribu tions, and reinvestment mechanisms, making it largely self-financing and independent of ongoing government subsidies. It is precisely its financial independence that also shelters the affordable and social housing market from p­ olitical interventions and party politics. Flow of Funding in Danish Non-Profit Housing Municipal Interest-Free Loans(50-Year Duration) → → When a new non-profit housing project is initiated, mu nicipalities provide an upfront, interest-free loan cover ing 8-12% of construction costs, depending on unit size. → →This municipal loan allows housing associations to set lower initial rental prices, making the housing more affordable from the outset. → → The loan is repaid over 50 years, with payments begin ning after the first 30 years once mortgage repayments are complete. Fixed Mortgage Repayment(Years 0-30) → →The remaining construction costs(beyond municipal loans) are financed through fixed-rate mortgages capped at 3% interest, ensuring predictable and stable repayment terms for housing cooperatives. → → Tenants’ rent payments contribute to repaying these fixed rate mortgages. State Loans and Subsidy Repayments(Years 30-40) → → For the first 30 years, state subsidies help keep rents low for tenants. However, these are structured as repayable loans rather than permanent subsidies. → → Between years 30 and 40, tenants effectively repay these state loans through their rent payments. Revenue Reinvestment and National Building Fund Contributions(Beyond Year 40) → →Once all mortgage and state loan repayments are completed, housing revenue is reinvested into Denmark’s ­affordable housing sector. 4 Friedrich-Ebert-Stiftung e.V.

The below table provides an Table overview over the source, share and timeline of financing for new housing projects: Funding Source Mortgages (Fixed-Rate, 3%) Municipal Interest-Free Loan State-Backed Subsidies(Loans) Share of Total Cost 84–85% Repayment Timeline Years 0–30 8–12% Years 30–40 3–4% Years 30–40 After the mortgage and loans have been repaid, rent payments flow to the National Building Fund that allocates as follows: → → 1/3 for new housing construction → → 1/3 for renovations, upgrades, and infrastructure → → 1/3 for savings within individual housing cooperatives Key Financial Mechanisms Ensuring Affordability The National Building Fund(Landsbyggefonden) This central fund accumulates surpluses from all non-profit housing associations, ensuring a continuous flow of financ ing for renovations, maintenance, and the development of new affordable housing units. Unlike many housing subsi dy programs, it operates without relying on external gov ernment funding, as tenant contributions sustain the sys tem over time. The Danish Building Defects Fund(Byggeskadefonden) This fund is designed to cover structural repairs and neces sary renovations, ensuring the long-term quality and dura bility of Denmark’s non-profit housing stock. It also serves as a financial safety net, providing resources for unexpect ed defects or damages that may arise in newly constructed or renovated buildings. It, too, operates without relying on external government funding, as tenant contributions sus tain the system over time. Cost-Based Rent Model In Copenhagen, the average transaction price for new resi dential properties is approximately 6,000 euros per square meter, which is about 45,000 Danish kroner(DKK) per square meter. To prevent housing costs from escalating ­beyond affordability, the government sets a maximum ­construction cost per square meter, such as the 24,000 DKK/m² cap(around 3,200 Euro/ m²) in Copenhagen. This regulation helps keep rental prices aligned with ­actual costs rather than speculative market fluctuations. ­Additionally, land purchases are strictly regulated, allowing non-profit housing associations to acquire land at ­below-market rates in urban areas, further ensuring the long-term affordability of housing developments. The ownership and access to land for the construction of new built affordable and social housing remain a challenge in most European cities, including Copenhagen and other Danish large cities. Firstly, many cities own a lot more land than they may be aware of. This is because public land ownership is often spread out across a multitude of public authorities making ownership fragmented and unclear. Additionally, in Denmark, municipalities play a significant role in land ownership and management, particularly concerning affordable and social housing developments. They have the authority to acquire land at below-market prices, which they can allocate for such projects, ensuring long-term affordability and adherence to urban planning objectives. This proactive approach allows Danish municipalities to maintain substantial control over land use and housing policies.​ In contrast, German municipalities often face financial ­constraints that limit their ability to retain or repurchase land. While they possess instruments like land readjust ment(Baulandumlegung) to manage and develop land, the e­ ffectiveness of these tools can be hindered by budget ary limitations. Consequently, German municipalities may struggle to influence housing development and affordabili ty to the same extent as their Danish counterparts. Municipalities in Denmark set requirements for affordable and social housing in new developments. In Copenhagen and other major cities, 33% of all newly built projects are designated for affordable and social housing. Within this allocation, approximately 25% is reserved for social hous ing, with municipalities responsible for tenant allocation. However, in other smaller cities and town, the percentage is typically 25% of all new built projects of which 20 to 15% is reserved for social housing. In Copenhagen and other major cities, 33% of all newly built projects are designated for affordable and social housing. In Denmark, rents in affordable housing are typically around two-thirds of market rates, while social housing rents are even lower, often just one-third of the market rent, making both options vital for ensuring broad housing accessibility. On average, Danish households allocate ­approximately 23% of their gross adjusted disposable ­income to housing expenses, which include rent, mortgage Denmark’s Non-Profit Affordable and Social Housing Model 5

payments, utilities, and maintenance. Yet, for low-income households, the financial burden is more pronounced. A substantial share of tenants in the bottom quintile of the income distribution spends more than 40% of their ­disposable income on private rent. This ensures a mix of income levels in new developments and helps to address growing housing inequality in urban ­areas. The aim is to promote social cohesion and prevent spatial segregation by integrating social and affordable housing into all parts of the city. Key Challenges in Denmark’s Housing Sector Over 87% of Denmark’s population lives in urban areas, and approximately 20–25% reside in affordable or social housing. Nonetheless, Denmark, like other European coun tries, is grappling with an escalating affordable and social housing crisis, primarily driven by rapid urbanization, shift ing demographics, limited public resources, and mounting market pressures. In general, individuals with the greatest need are prioritized for social housing allocation by the municipality. This includes people experiencing homelessness, single parents who have fled abusive relationships, young adults without stable housing, and others in vulnerable situations. Howev er, it is not uncommon for municipalities to underutilize the allocation capacity available to them, either because social housing tenants are often locally subsidized and the municipality lacks the necessary funds, or because supply may temporarily exceed demand. Over 87% of Denmark’s population lives in urban areas, and approximately 20–25% reside in affordable or social housing Affordable housing, on the other hand, is allocated by non-profit housing associations, typically through waiting lists. However, allocations may also consider factors such as income, education, ethnicity, and other aspects to ­promote social diversity within housing developments. In the Greater Copenhagen area, housing supply needs to increase by 5,000 to 9,000 dwellings annually over the next 20 to 30 years to meet demand. This translates to ­approximately 110,000 new dwellings by 2035 and more than 150,000 by 2045. A significant portion of this demand is for small apartments suitable for young people in the city center. Thus, while municipalities are responsible for ensuring adequate housing, they often face significant financial constraints as high-return private real estate investments take precedence over affordable housing initiatives. Furthermore, the availability of subsidized housing for stu dents and young people is notably insufficient. Nationally, there is only enough subsidized housing to accommodate one in twelve students, highlighting a critical gap in afford able housing options for this demographic. ​ At the same time, demographic shifts, including the rise of single-person households and single-parent families, have further intensified the demand for smaller, cost-accessible housing units. Financial Constraints and Market Pressures → → Municipal housing budgets are stretched thin, making it difficult to finance new developments while maintaining the existing stock of affordable housing. → → The rising dominance of private investors in Denmark’s urban housing market has tilted development priorities toward high-profit luxury apartments rather than costbased rental housing. → → Private sector speculation has significantly contributed to price inflation, creating a barrier to affordable rental options in major cities. Growing Demand and Demographic Shifts → → Over 40% of Danish households now consist of a single person, leading to an unprecedented demand for small er, affordable units. Yet Denmark’s housing market still largely favors larger family-sized dwellings. → → 27% of Danish children live with a single parent, many of whom struggle to afford rising rental costs, as limited income streams make them particularly vulnerable to housing insecurity. Severe Housing Shortages in Urban Areas → → In Copenhagen, waiting lists for affordable housing exceed 10 years, reflecting a critical mismatch between demand and supply. Even outside the capital, long waiting times persist, making it increasingly difficult for low-income residents to access stable housing. → → Urban property values have surged by 250% over the past two decades, making affordable rental options increasingly scarce, particularly for students, low-income workers, and pensioners. → → Rent burden is alarmingly high: 42% of Danish renters now spend more than 40% of their income on housing, far exceeding the EU affordability benchmark of 30-35%. Implications for Denmark’s Housing Policy Without urgent intervention, these challenges threaten to exacerbate socioeconomic inequalities, further pushing vul nerable populations into housing precarity. Addressing these structural imbalances requires strategic policy adjustments, including land-use reforms, increased non-profit housing ­investment, and stronger regulatory measures to curb 6 Friedrich-Ebert-Stiftung e.V.

speculative real estate practices. Denmark’s housing model, long considered a beacon of social equity, must adapt to changing economic and demographic realities to preserve its commitment to affordability and social cohesion. Best Practices in Denmark’s Affordable Housing Model Denmark’s approach to affordable and social housing is inter nationally recognized for balancing long-term affordability, ­financial sustainability, and social inclusion. Central to this model is the private non-profit housing sector, which operates on a self-financing, self-governing basis. Surpluses are rein vested into maintenance and development rather than profit, helping to stabilize rents and support community well-being. Self-Financing and Cost-Efficient Housing Denmark’s non-profit housing relies on a cost-based rent model, where rental income covers only operating expens es, maintenance, and reinvestment, shielding tenants from market-driven rent increases. → →The National Building Fund(Landsbyggefonden) supports renovation and new construction, ensuring longterm viability. → →The Building Defects Fund(Byggeskadefonden) covers structural issues in new or renovated buildings, main taining quality and safety. This financially resilient model allows Denmark’s non-prof it housing sector to expand and adapt, even amid growing urban demand and market pressure. Tenant Empowerment and Housing Democracy One of the defining features of Denmark’s non-profit hous ing model is tenant participation in decision-making, which fosters a sense of ownership, responsibility, and long-term stability. → → Democratic governance structures ensure that tenants elect representatives to cooperative housing boards, giving them direct influence over housing policies, rent adjust ments, maintenance priorities, and reinvestment decisions. → →Tenant-controlled housing associations create a built-in mechanism to resist privatization and external market pressures, ensuring that housing remains affordable and community-driven. → → Participatory decision-making processes foster social ­cohesion, encouraging residents to be actively involved in the well-being of their housing communities, strengthening civic engagement and mutual support. This tenant empowerment model not only enhances affordability but also improves housing quality, as residents have a direct stake in maintaining and improving their living environments. Long-Term Housing Stability Denmark’s affordable housing model is designed to pro vide long-term stability by preventing displacement, gentri fication, and speculative pressures. → →A mixed-income allocation system ensures that social and middle-income tenants live side by side, helping to prevent concentrated areas of poverty or housing ghet tos. This integration fosters stronger, more resilient com munities. In practice, it means that individuals with ­affordable housing needs who hold higher education or professional jobs may bypass long waiting lists to sup port social diversity targets, resulting in even longer waits for those who do not meet these diversity criteria. → → Municipal land trusts are increasingly used to remove land from speculative markets, guaranteeing affordabili ty for future generations. These trusts ensure that housing remains permanently affordable, regardless of mar ket fluctuations. → → Preventative housing policies ensure that existing ­affordable housing remains protected from buyouts or conversion into private market rentals, maintaining a stable and predictable supply of cost-based housing. The Path Forward: Policy Recommendations For Social Democrats, this model offers a strong policy foundation to position affordable housing as a core social right rather than a market commodity. By advocating for similar policies, political leaders can broaden their electoral outreach, demonstrate commitment to housing fairness, and promote socially inclusive urban development. More over, embracing this approach allows Social Democrats to present a concrete, scalable solution to the global housing crisis, one that prioritizes long-term stability over shortterm profit. By championing such policies, they can bridge the growing divide between economic classes, appeal to both urban and suburban voters, and reinforce their role as stewards of equitable and sustainable urban growth. To ensure long-term sustainability and affordability, ­policymakers and housing associations should consider a multi-pronged approach that strengthens Denmark’s non-profit housing model and fortifies it against external market pressures. Expand the supply of non-profit housing through strategic land acquisitions and incentives. By securing land for non-profit housing developments be fore it becomes subject to market speculation, policymak ers can maintain long-term affordability. This can be achieved through municipal land banks, government land purchases, or partnerships with private developers willing to allocate a portion of their projects to non-profit housing. Denmark’s Non-Profit Affordable and Social Housing Model 7

Additionally, offering financial incentives, such as tax ben efits or expedited permitting for non-profit housing proj ects, can encourage more investment in this sector. Strengthen tenant governance and cooperative housing models to enhance local participation. Tenant-driven governance is a cornerstone of Denmark’s model, ensuring that residents have a say in the manage ment and future development of their communities. ­Expanding cooperative housing models and increasing tenant education programs can further empower residents to actively participate in decision-making processes. Policy makers should also explore new digital tools and platforms to facilitate greater transparency and engagement in housing governance. Establish a National Building Fund and expand alternative financing mechanisms. Establishing a National Building Fund(Landsbyggefonden) is essential for ensuring long-term reinvestment in Denmark’s non-profit housing sector. While the current fund has been instrumental, diversifying financing sources is crucial for long-term sustainability. Policymakers should explore alternative mechanisms such as impact bonds, land trust funds, and public-private partnerships to attract more capital. Engaging pension funds, ethical investors, and municipal funding pools would further strengthen financial stability, reducing reliance on a single funding source while securing affordable housing for future generations. By reinforcing these key areas, Denmark can further cement its non-profit housing model as a resilient, adaptable, and scalable solution to the global housing affordability crisis. Summary Denmark’s private non-profit housing model stands as a globally recognized approach to balancing long-term ­affordability and social stability. Housing associations op erate as self-governed, cost-based entities, ensuring that surpluses are reinvested into maintenance and new devel opments rather than extracted for profit. A central pillar of this system is the National Building Fund(Landsbyggefonden), which provides financial support for renovations, new housing projects, and long-term maintenance, securing the model’s sustainability over time. Denmark’s non-profit housing sector remains one of the world’s most effective affordable and social housing mod els, but its long-term sustainability depends on continuous expansion, financial adaptation, and strong policy safe guards. Without proactive reforms, the delicate balance ­between market forces and affordability could erode, put ting Denmark’s tradition of social equity in housing at risk. By maintaining its commitment to affordability, tenant ­empowerment, and financial sustainability, Denmark can continue to set a precedent for cities worldwide seeking a viable alternative to speculative housing markets. Further Readings: “Governing and financing affordable housing at the intersection of the market and the state: Denmark’s private non-profit housing system,” Noring et al., Urban Research and Practice, 2022. “Financing the inclusive city: A case study of the Danish model of affordable and social housing,” Noring, ICLEI, 2018. 8 Friedrich-Ebert-Stiftung e.V.

About the Author Luise Noring is an expert in urban governance, financing models, and sustainable city development, with a strong focus on affordable housing and social infrastructure. She has worked with international organizations such as the OECD, the European Commission, and the Brookings Insti tution, contributing to research on municipal finance and innovative housing policies. With a Ph.D. and extensive ex perience in both academia and policy advising, Noring’s work bridges theory and practice, offering actionable solu tions for cities seeking to balance economic growth with social equity.

Denmark’s Non-Profit Affordable and Social Housing Model → Denmark’s private non-profit housing model provides a sustainable alternative by reinvesting surpluses into rental reductions, maintaining longterm affordability without external subsidies. This selfgoverning and self-financing system not only ensures financial sustainability but also empowers tenants through democratic decision-making, fostering collective savings that support housing maintenance and future development. → A central pillar of the system is the National Building Fund (Landsbyggefonden), which accumulates surpluses from all non-profit housing associations, ensuring a continuous flow of financing for renova tions, maintenance, and the development of new afford able housing units. Unlike many housing subsidy programs, it operates without ­relying on external govern ment funding, as tenant ­contributions sustain the ­system over time. → Denmark has introduced ­municipal land trusts to ­remove land from speculative markets, ensuring that hous ing remains affordable in the long run. By removing housing from market spe­ culation and placing it under tenant-driven governance, this model demonstrates a scalable and adaptable ­approach for cities striving to balance economic growth with social responsibility. You can find additional publications from the Friedrich-Ebert-Stiftung at the following link: ↗ www.fes.de/publikationen