Collapse in Swedish residential construction

Residential construction collapsed by 45 percent during the first half of 2009, new figures from Statistics Sweden (SCB) show.

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Construction began on a total of 6,650 units during the six month period up to the end of June 2009, which can be compared to 12,089 in the corresponding period of last year.

House construction plummeted from 6,188 to 2,900, while apartment construction fell from 5,901 to 3,705.

The figures are the lowest since the crisis years of 1993-1994, according to Nilserik Sahlén at SCB.

"There are currently no indications of a turnaround, but nothing dramatic has happened. So this level will perhaps be maintained for some time," he said.

For the whole of 2009 Sahlén expects construction starts to amount to a total of 12,000.

The number of construction starts in 2007 and 2008 - 28,097 and 21,400 respectively - was negatively affected by the phasing out of state subsidies for new construction in 2006.

The phase out led to many construction firms bringing forward projects resulting in an annual rate of 45,000 apartments for 2006, Sahlén said.

"But this should no longer have an impact. So we are now at levels seen after the financial crisis in the beginning of the 1990s," he added.

"The dramatic decline in construction starts is due to caution among construction companies over where the economy is heading, but also due to continued financing problems," Tobias Kaj at Swedish bank Handelsbanken said.

"Even if there is a strong market for existing housing, with active bidding and high demand, there is a significant difference within new construction. For construction companies to be able to begin new projects the buyer has to accept a price despite the fact that they won't move in for up to 18 months," Kaj said.

"But construction companies have experienced trouble securing financing from the banks. This has presumably improved somewhat in recent months but has been very tough during the first half of the year."

The abrupt halt in construction starts paves the way for a residential housing shortage and higher house prices in the future according to Per Johnler, CEO of estate agent Fastighetsbyrån, which is part of the Swedbank concern.

"Now that the construction of new apartments has cooled off so dramatically, there will be consequences. Continued housing shortages and fewer new apartments will be a factor that will push prices up," Johnler writes in a comment on SCB's statistics.

"An excessively low level could even harm the broader economy in the longer term," he continued.