Swedish housing policy leaves rich even richer

Sweden has paid homeowners to live in their homes, argue three economists who say rent control and the construction stall hamper social mobility by transferring wealth to already capital-rich homeowners.

Swedish housing policy leaves rich even richer

The construction stall in Sweden is seen primarily as a problem for those who need to rent a home. What’s less discussed is the massive shift in wealth to those who already own homes at the expense of those who need to buy a home in the future.

A new Reform Institute report show the effect varies widely between municipalities and between the rich and poor. It could prove disastrous for social mobility in Sweden.

We already know the reasons why Swedish construction companies are building so few new homes, compared to similar countries. Construction costs have skyrocketed due to long planning processes, regulations that vary depending on location, a costly appeals process, and laws on how to set rents. To make matters more complicated, different municipalities have dealt with these obstacles very differently.

The Reform Institute’s study used Finland as a reference case because its

construction rate is typical of a northern European country without very restrictive building regulations. What would Sweden’s housing situation look like today if Sweden’s politicians had followed Finland’s lead 15 years ago?

About a half-million new homes in a country of nine million would have been built.

It would have also generated economic benefits for society – of around 74 billion kronor ($11.5 billion), according to Reform Institute estimates based on how consumers value their homes in relation to how much it would have cost to build them.

Furthermore, companies looking to expand would have been able to tell would-be employees that they could easily find a place to live – allowing job creation and in-house transfers. That would have fostered industry and employment and contributed to national economic growth.

Yet the most remarkable effect of the Swedes’ inability to build new homes is how it has distributed wealth, a from-riches-to-riches effect that has barely been studied in Sweden before.

Since 1997, house prices rose by 120 percent. The price of tenant-owner apartments (bostadsrätter) shot up even higher. Had the Swedes taken a leaf out of the Finns’ book, house prices would have been 30 percent lower according to our estimates.

The scarcity of housing has simply pushed up the prices of homes, in effect adding value to a capital asset of many existing homeowners. These Swedes have, in essence, been paid to live in their homes.

Barriers to building can seriously hamper social mobility. When house prices are high, it becomes harder for people without sufficient capital to leave a place where unemployment is high and home prices are low, and instead try their luck in cities with many jobs but few homes.

Young people with cash-flush, ready-to-help parents, however, simply buy their way into the housing market. This has implications far beyond housing.

People with parents whose homes have substantially appreciated in value can move for studies or work, in the end having no problem setting up home in an area with employment opportunities despite daunting obstacles to finding a place to live. Furthermore, we argue that they have better opportunities for investing, starting businesses, getting further education, and become better prepared to deal with various life crises.

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Reform Institute estimates show that Swedish homeowners enjoyed a wealth boost of 972 billion kronor compared to if Swedish construction had followed the Finnish example.

These 972 billion kronor probably make up probably the biggest transfer of assets in Sweden’s history. To put this in comparison, when Sweden still had a wealth tax, society’s richest paid in an additional six billion kronor annually to the state coffers.

And the richest of the rich benefit the most. Of that total sum, 865 billion kronor went to the richer half of the population and 350 billion – about a third – to the richest ten percent. Homes in Stockholm County alone, for example, are worth 375 billion kronor more due to the housing supply shortage.

Wealth effects vary widely, however, from one municipality to the next. They are least noticeable in municipalities with declining populations. In contrast, several well-to-do suburban municipalities that have seen the greatest wealth effects are also trying to stop new construction.

The municipality with the largest wealth gain is the upscale Stockholm suburb of Danderyd, where every resident in the richer half of the municipality’s population has earned nearly 800,000 kronor on the construction stall. Residents of Lidingö, another posh Stockholm suburb, have earned the second most.

Between declining towns and the wealthy suburbs, we find emerging regions that have unleashed new construction, places like Umeå in the north, Uppsala in the east, and Halmstad in the south – places that are therefore experiencing some wealth effects.

The slowest builders are Eskilstuna municipality in central Sweden, as well as Gävle and Norrköping in the east. In Eskilstuna, for example, an additional 8,000 homes should have been build to match the Finnish construction-to-population-growth rate. Instead, rising home prices put 2.8 billion kronor into the hands of the town’s ten percent richest – which is 280,000 kronor per person.

Some people getting richer can sometimes increase social mobility, but that applies when people set up successful companies. But when a major redistribution of wealth takes place in silence through restrictive regulations, that’s a danger to society.

A growing sense of alienation among Swedes out-priced from owning a home could create a demand for higher taxes and more social benefits. This in turns risks feeding a vicious circle, with cash-strapped Swedes having a harder time finding work.

We must, therefore, look at redistribution with fresh eyes. It can’t be right to focus only on relatively small changes in pensions or unemployment insurance to create a more equal society, while political decisions are shuffling huge fortunes around in secret.

We need a much more detailed analysis of how Sweden’s dysfunctional housing market creates redistribution effects.

The government’s various reforms to facilitate new construction are a move in the right direction, but it will take a long time before they have any impact and the effects are uncertain. The government’s 2010 amendment to the planning and building law, for example, was meant to facilitate construction, but has probably had no effect at all.

The new proposals to abolish municipalities’ special requirements for new buildings and to move some of the decision-making power from the local to regional level are good, but probably not far-reaching or quick-acting enough. Meanwhile, home prices continue to rise rapidly.

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There are therefore grounds for more radical and immediate action. Several countries, including the UK, have periodically opened up for “new towns”, excluded from much of existing regulations. Finland, our benchmark country, simply abolished rent control in 1995, which boosted construction. Germany has in many cases abolished zoning requirements.

The dysfunctional Swedish housing policy supported for so long by both political blocs has instead created substantial wealth redistribution to homeowners with nary a whisper of debate.

The parties that oppose rapid and powerful measures to build new homes are on track to turn Sweden into a completely different society than the one we know.

Stefan Fölster, head of the Reform Institute

Daniel Jahnson, economist, Stockholm University

Jacob Lundberg, economist, Uppsala university

Authors of the Reform Institute report, ‘Redistributive effects of supply constraints in the housing market’ (Fördelningseffekter av utbudsrestriktioner på bostadsmarknaden).

This article was originally published in Swedish in the Dagens Nyheter (DN) newspaper. English translation by The Local.

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INTERVIEW: International students ‘vulnerable’ to Swedish housing shortages

People moving to Malmö to study now have to wait as long as a year to receive accommodation, Milena Milosavljević, the president of the Student Union in the city, has told The Local. The situation, she says, is "urgent and acute".

INTERVIEW: International students 'vulnerable' to Swedish housing shortages

The Sofa Project, run by the Student Union Malmö, received 80 applications this year from students who wanted to rent short-term accommodation, showing just how acute the current housing shortage is.

These 80 applicants were vying for one of seven spots, ranging from a spare room to a sofa bed – from hosts who sign up to offer their spaces to new arrivals.  As the programme only had seven hosts registered this year, the project had to close its application page to others, otherwise the number would have surpassed 80.

“They are ready to come to Malmö and sleep on a sofa bed at a stranger’s house before they find accommodation,” Milosavljević told The Local. 

Malmö recently received a red designation from the Swedish National Union of Students, which publishes an annual report assessing the housing situation in university towns and cities across Sweden. A red designation means that finding suitable accommodation as a student takes more than one semester. The report found that 61 percent of students live in a city that has been designated a red ranking.

READ ALSO: Sweden’s student union warns that housing shortages are back this semester

“The reality of Malmö and the reason why it became red is that to find suitable accommodation you have to wait up to a year,” Milosavljević said.

Some individuals, she said might have to wait up to three years to find their own accommodation, making do with second-hand contracts, long commutes, and living with family members in the meantime. For newly-arrived international students, who lack personal numbers when they move here and so cannot join Swedish housing queues, looking for suitable housing becomes a complex task.

“International students are more vulnerable because they don’t have a personal number to enter the system before they come to Sweden,” Milosavljević explained.

Milosavljević herself moved to Malmö as an international, fee-paying student. Because she paid tuition, she was offered housing by Malmö University. Based in part on her own experience, Milosavljević explained that the housing issue cannot be reduced to a shortage in the number of flats and rooms. There is also a shortage of appropriate housing options for different needs.

“They offered me accommodation in a student building,” she said. “Not an apartment, but a room – and I came with my husband. The room was not enough for two of us.”

Student accommodation must accommodate the different needs of different members of the student body, Milosavljević said, including those who move with partners or spouses, or even with their children.

In the past year, one new student apartment building was built in Malmö, with 94 new spaces for the city’s student body. This is inadequate, Milosavljević said. While Malmö is growing, and there is residential construction being carried out around the city, it is unclear how many of those new buildings will prioritise the city’s student population.

The city’s student population, too, is growing. As the pandemic era ended in Sweden, students returned to campus. And new students joined them. While student ranks grew, housing options remained stagnant.

“From our perspective from the Student Union, we have talked about, in the previous years, how the situation after the pandemic is going to get even worse for the students,” Milosavljević said. “There’s an increase of students coming back, new students, and already not even enough housing.”

Milosavljević has fielded calls and emails from students who say that they cannot move to Malmö because they cannot find housing.

“They are already working on it,” Milosavljević told The Local of the university’s response.

There are plans to create more housing for international students, but these proposals focus mainly on students from European Union, leaving other international students out. All international students should be given priority for student accommodation, Milosavljević said, because none of them have access to the Swedish housing market.

“I do believe strongly that the City of Malmö and Malmö University need to have urgent negotiations and start building straight away,” she said.

Because Malmö University is a public university, it must follow the lead of the Ministry of Education and Research. Milosavljević acknowledged that in the aftermath of Sweden’s recent elections, which put the right-bloc in power, student housing shortages might not rank highly on a list of national priorities.

“The Student Union Malmö considers this situation quite urgent and acute,” Milosavljević said. “We are more than prepared to sit down and talk so we can actually do something, instead of just having meetings. The students will continue to suffer if the living conditions and the bostad [housing] situation in Malmö is not improved.”