Sweden Must Solve Housing Supply Shortage to Avoid Bubble, Attefall Warns
Swedish House Market Needs Supply, Not More Caps, Attefall
Linus Hook/Bloomberg
The number of apartment-building starts last year rose 48 percent from 2009, when it hit a 10-year low following the financial crisis, according to the agency.
The number of apartment-building starts last year rose 48 percent from 2009, when it hit a 10-year low following the financial crisis, according to the agency. Photographer: Linus Hook/Bloomberg
Sweden’s real-estate market needs a bigger property supply instead of tougher mortgage lending rules if the largest Nordic economy is to avoid a bubble, Housing Minister Stefan Attefall said.
“If we don’t solve the supply side then we will have a problem,” Attefall said yesterday in an interview in Stockholm. “We will have to wait for a while to see if” existing mortgage caps are “enough. Unless we kick-start an increase in the building of homes, we will have a continued upward price pressure, so it’s important that we work with that side of things too and that’s often forgotten in the debate.”
Swedish house prices rose during the financial crisis even as the economy contracted and unemployment swelled, prompting the National Housing Credit Guarantee Board in February 2010 to warn that the country was in the grips of a property bubble. The central bank has said part of the reason it raised rates five times since July is to stem the risk of imbalances in the mortgage market.
“The rate rises that we’ve seen have had very small effects” on the housing market, said Robert Bergqvist, chief economist at SEB AB. The problem is that “there’s been too little construction in Sweden.”
The krona slipped 0.2 percent against the euro to trade at 9.0497 at 11:12 a.m. in Stockholm. Against the dollar, it lost 0.5 percent to 6.33247.
FSA Efforts
Since the Financial Supervisory Authority in October introduced an 85 percent cap on loans relative to a property’s value, the housing market has shown signs of stabilization, with house prices stagnating, on a monthly basis, statistics office data show.
“I’m not generally worried at the moment” about a bubble, Attefall said. Even so, “we should keep a very close eye on the development” of house prices, he said.
The central bank raised its repo rate to 1.5 percent in February and signaled it will continue raising rates throughout the remainder of the year as it tries to steer Europe’s fastest economic recovery and in an effort to cool credit growth.
The Riksbank said in an April 5 report that monetary policy efforts to steer the housing market need to be supported by regulatory measures and prudent bank lending.
The FSA’s Chief Economist Lars Frisell said yesterday the watchdog is ready to lower the loan-to-value ratio below 85 percent, though house prices so far appear to be moving in the “right direction.” Attefall said he hopes lowering the cap won’t be necessary.
Construction
The number of completed apartments in Sweden averaged 20,000 a year last decade, down from an average of 53,000 since 1960, according to the statistics office. The number of apartment-building starts last year rose 48 percent from 2009, when it hit a 10-year low following the financial crisis, according to the agency.
Swedish plans to impose some of the world’s toughest capital requirements will filter through to all areas of the economy and won’t target the mortgage market in particular, Attefall said.
The FSA’s mortgage cap has curbed borrowing, the regulator said in a report this week, citing credit chiefs at seven Swedish banks. Household borrowing growth slowed for a fifth month to 7.47 percent in February, the lowest level in at least eight years, after peaking at 13.23 percent in March 2006.
Housing Boom
“The signals we’ve received from the credit chiefs at the banks suggest that we’re moving in the right direction,” said Frisell.
Sweden’s housing boom from 1997 to 2007 lasted 11 years and resulted in an above-trend increase of house prices by 67 percent, according to a 2009 European Central Bank study cited in the Riksbank April 5 inquiry. Only France was close with an above-trend increase by more than 50 percent over nine years, according to the study.
Swedish house prices, which gained more than 10 percent in 2006 and 2007, also rose 2.9 percent and 2 percent, respectively, in the following two years even as the economy sank into a recession and unemployment surged. Prices declined 1 percent in February from January, according to the latest available statistics office data.
To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net
To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net
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