Every spring the EC publishes its country specific recommendations for EU Member States after reviewing their economies, and this year Sweden has been urged to take action to address household debt and improve the strained housing situation.
The Commission notes that Sweden is experiencing "macroeconomic imbalances" and that in particular "persistent house price growth from already overvalued levels coupled with a continued rise in household debt poses risks of disorderly correction".
If not dealt with, fallout could spill over to the financial sector as banks have a growing exposure to household mortgages, which could in turn hurt neighbouring countries in the Nordic-Baltic region, where Swedish banks are important.
Concerns over Sweden's housing market at an international level are not new: Swiss investment bank UBS warned last year for example that Swedish capital Stockholm had the third most over-valued property market in the world.
Household debt in Sweden has continued to rise from already high levels, the EC's report details, growing by 7.1 percent in 2016 and approaching 86 percent of GDP, as well as around 180 percent of disposable income. The main driving factor is higher mortgage borrowing as a result of continued house price increases.
The key drivers of the persistent house price growth are, according to the Commission, "generous tax treatment of home ownership and mortgage debt, accommodative credit conditions coupled with relatively low mortgage amortisation rates, and an ongoing housing supply shortage".
It remains unclear whether a new mortgage amortisation requirement from 2016 will have any sufficient impact, the EU institution warns.
The shortage of available housing meanwhile is linked to "structural inefficiencies in the housing market", with construction well below the level needed, and competition in the construction sector weak. A tightly regulated rental market hinders the efficient use of existing housing, exacerbating the problem.
Consequences of the lack of affordable housing include limiting labour market mobility, hampering integration of migrants in the labour market, and increasing inequality between generations, the Commission observes.
It is precisely that lack of labour market mobility that the founders of Swedish streaming giants Spotify have complained about in the past, noting that a lack of available housing is making it difficult for them to attract the best talent and may even one day force them to target growing in other countries than Sweden.
In order to combat the household debt situation, the EC recommends that Sweden should "gradually limit the tax deductibility of mortgage interest payments or increase recurrent property taxes while constraining lending at excessive debt-to-income levels" in 2017 and 2018.
To improve the availability of housing meanwhile Sweden should "foster investment and improve the efficiency of the housing market by introducing more flexibility in setting rental prices and revising the design of the capital gains tax".
Sweden's finance minister Magdalena Andersson agrees that there are problems with the Swedish housing market, but is sceptical about some of the recommendations.
Limiting the generous tax breaks for home owners is not on the table for example.
And while she is more receptive about measures to increase construction as well as a possible debt ceiling limiting the size of mortgages based on the borrower's income, she warned that deregulating the rental market has the potential to go wrong, citing Finland as an example.
"We've seen rents increase by 40 percent there but there haven't been more rental contracts available. That's problematic, no more rental opportunities were created but the cost of living became more expensive," she told Sveriges Radio.
Sweden's rental market is tightly regulated when it comes to municipal or state-regulated rental companies, who are banned from charging tenants above a certain level, but a shortage of those kinds of properties has created opportunity for private owners, who vary wildly in the prices they set for so-called "second hand" leases.