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HOUSING

Property prices rocket despite crash warning

Sweden's housing market is continuing to heat up, despite warnings from top economists that the situation is a bubble waiting to burst.

Property prices rocket despite crash warning
Properties in central Stockholm cost 90,000 kronor per square metre ($11, 076). Photo: Fredrik Sandberg/TT
The cost of buying an apartment in a shared building has risen by three percent over the past month and prices across the country have gone up by 14 percent compared to last year, according to new figures from Svensk Mäklarstatistik, a Swedish agency which measures real estate agent sales.
 
The average price per square metre of property in Sweden is now more than 36,000 kronor ($4,430) the highest figure in Swedish history, Svensk Mäklarstatistik reports.
 
Gothenburg has seen the greatest increase in prices, with a rise of 21 percent for apartments in the city and its outer suburbs over the last 12 months. Those hoping to buy their own house in the city are facing prices 15 percent higher than a year ago.
 
But central Stockholm remains the most expensive location, with an apartment now costing almost 90 000 kronor ($11,076) per square metre.
 
News of the hike in prices comes just a week after the country’s National Institute of Economic Research (NIER) warned that the market could soon end up crashing.
 
“There is a significant risk that prices are at unsustainable levels,” NIER’s director Mats Dillen told Swedish broadcaster SVT at the time.
 
“We are now starting to worry (…) we have to slow down the development of house prices (…) If we don't try to slow this trend there is a risk that there will be an abrupt fall in prices later, a crash,” he said.
 

A property viewing in Stockholm. Photo: Fredrik Sandberg/TT
 
Hans Lindberg, a Professor of Real Estate at KTH University in Stockholm, told the TT news agency on Tuesday that he felt the decision by Sweden's central bank (The Riksbank) to cut interest rates to below zero had been a major factor in allowing a housing bubble to form.
 
“If the Riksbank had not cut interest rates in this way in the past year and promised a low interest rate over a long period this would not have occured. It is the Riksbank that is the villain,” he said.
 
The Riksbank has long argued that keeping rates low will encourage inflation in Sweden (where the prices of everyday goods and services have been stagnant for the past few years) which it says will inject more money into the country's economy.
 
Howver Lindberg told TT that he agreed with the NIER's concerns and said that politicians needed to do more to ensure that more affordable properties are built.
 
“You have to force municipalities to plan more land [for this]. And it's about building places that people with lower incomes can afford,” he argued.
 
Prime Minister Stefan Löfven's government has promised to set aside 5.5 billion kronor ($665m) for various housing projects in 2016, if his budget gets passed by parliament later this month.
 
“It's the biggest housing political investment in 20 years in Sweden,” said Finance Minister Magdalena Andersson last month.
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OPINION & ANALYSIS

OPINION: Sweden’s ‘historic investment’ has failed to solve the housing crisis

Five years after Sweden's government promised to solve the country's housing crisis with a "historic investment", things are as bad as ever, David Crouch argues. Radical action is needed.

OPINION: Sweden's 'historic investment' has failed to solve the housing crisis

Forced to move house 20 times in the past eight years, Maria’s situation was desperate. She and her daughter had arrived in Stockholm from Latin America in search of a better life. She found work, no problem – but housing was impossible.

“Sometimes I was paying 12,000kr in rent and it was very hard because I only had 15,000kr in monthly salary,” says Maria (not her real name). So she took a high-interest loan of 240,000kr and tried to bribe someone in the Housing Agency to get to the front of the queue for affordable housing.

But she was caught. Her fate is unknown. And she didn’t even get an apartment.

This recent story, in the excellent newspaper of the Tenants’ Association, sums up the problems facing people who move here to work. The market for rental accommodation is tight as a drum. Finding a home means competing with Swedes, but with all the disadvantages of being an outsider. So people find themselves pushed into short-term, insecure rental contracts at inflated prices.

It wasn’t supposed to be this way. Five years ago this month, the government announced a “historic investment in housing”, including subsidies for construction companies, easing restrictions on building permits, and making more land available.

The housing situation at the time was grim. Spotify had threatened to leave Sweden if things didn’t improve – how could the company attract skilled young people to a city where there was nowhere for them to live? More than half Stockholm’s population – 600,000 people – were in the queue for a coveted rental apartment, because strict regulation meant these rents were low. But it took as long as 20 years to get to the front of that queue.

The result was a thriving rental property black market, with large bribes changing hands. Many tenants exploited the situation by sub-letting their homes, or parts of them. “It is almost impossible for immigrants and new arrivals to penetrate this market – it is all about who you know and how much money you have,” said Billy McCormac, head of the Fastighetsägarna property association, in 2015.

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So what has been the outcome of the grand promises the government made five years ago? House-building at the time was already rising steadily, and it has continued to do so. Look around you in the big cities and you will see that new apartment blocks have sprung up here and there.

But we shouldn’t go only on appearances. To understand the reality, we need to look at some numbers.

The gap between demand for housing and the existing housing stock has indeed started to shrink. “As housing construction has gradually increased and population growth has begun to slow down, the gap has decreased since 2017,” Stockholm’s Housing Agency noted in December.

The Agency has broken records four years in a row for the number of rental homes it has provided. The proportion of young adults living independently has also increased somewhat, the Tenants’ Association found, probably due to the pace of construction.

But this smidgen of good news is outweighed by an avalanche of bad.

The average queuing time in 2021 for a Stockholm apartment was more than 9 years; for somewhere in the city centre you have to wait 18 years. Only 936 homes came with a waiting time of less than one year. More than three-quarters of a million people are now registered in the queue for housing – a big increase on five years ago.

The rate at which the housing shortage is shrinking is nowhere near fast enough to alleviate the huge accumulated demand.

Assuming that the current pace of construction can be maintained, it will be the end of this decade before any significant dent is made in the deficit of homes, according to Boverket – the Swedish National Board of Housing, Building and Planning. The current rate of construction is “only marginally more than the long-term need”, it says.

The challenge is even greater when it comes to producing affordable housing, Boverket says, especially for the young and those entering the housing market for the first time. Almost one in four young Swedes up to the age of 27 are forced to live at home – the second-highest figure since the measurements began.

There are already signs that housing construction is actually slowing down, owing to higher building material prices, rising interest rates and an incipient labour shortage. Construction prices rose by more than 8 percent last year, and there is concern in the industry that war in Ukraine will further affect costs, in turn slowing the pace of building.

There is another fly in the ointment, a consequence of the collapse of Sweden’s governing coalition in November. The new, minority administration was forced to adopt the opposition’s budget, which halted investment subsidies for house building, throwing the construction industry into confusion.

In short, the “Swedish model” for providing people with a roof over their heads is failing. The folkhemmet, or “people’s home”, has not enough homes for its people.

Swedes themselves understand this: in a survey last month, nine out of ten voters said they thought that politicians did not take the housing shortage seriously.

We have waited too long. It is time for fresh thinking and radical action to solve the housing crisis.

David Crouch is the author of Almost Perfekt: How Sweden Works and What Can We Learn From It. He is a freelance journalist and a lecturer in journalism at Gothenburg University

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