Swedish Housing Subsidy Won't Help Shortage, Builders Say

  • Will only drive housing supply outside of biggest cities
  • Won't help government reach target of 250,000 homes by 2020

Sweden’s plan to subsidize housing construction will do little to solve the apartment squeeze in the major cities that has economists warning of a property bubble, according to the Swedish Construction Federation, which represents more than 3,100 companies.

The government plans to introduce investment support of 3.2 billion kronor ($380 million) a year for construction of rental and student apartments. It targets 250,000 new homes to be built by 2020 and hopes its backing will be used as partial funding for 15,000 new rental flats a year.

“It’s difficult to see that the government will reach the target with the measures that it’s planning,” Bjoern Wellhagen, head of industrial policy at the Construction Federation, said in a phone interview. “The investment support won’t add anything to that picture.”

The subsidies are more likely to be used outside of the growth regions of Stockholm, Gothenburg and Malmoe because of limits on what can be charged in rent, according to the federation. Sweden’s population is increasing and a rising urbanization is boosting demand particularly in the biggest cities.

According to Wellhagen, Sweden needs to loosen regulations for housing construction, increase mobility and make sure that those who lack capital can more easily enter the housing market.

Mortgage Rates

Factors driving housing demand are mainly households’ financial assets, taxation of property and capital gains, mortgage rates and employment, according to Wellhagen.

“None of these factors are changed because of the investment support.”

Sweden’s Finance Minister Magdalena Andersson on Wednesday presented new details on housing initiatives in next year’s budget. Besides from the investment support, a new bonus of 1.85 billion kronor will be shared between municipalities that help alleviate housing shortage, Andersson said.

“A big problem in our large cities is access to land,” the minister said. “We’ll not only have investment support to construction of rental apartments, but also a special bonus to municipalities. That combination should be successful in order to make sure more is built in our large cities.”

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