Sweden: Price History

Country Rating  »

Home ›  Europe ›  Sweden ›  Price History

Bull run in the Swedish housing market

The latest available data from Statistics Sweden indicates that the bull run of the Swedish property market continued in 2007, with an 11.31% surge in house prices. Stockholm’s strong house prices performance has been particularly striking, and the country’s three major metropolitan areas all experienced strong increases in prices – Stockholm (15.62%), Göteborg (8.90%), and Malmö (9.19%).

Construction of new dwellings continued to rise strongly. More than 70% small households in Sweden live in multi-dwelling buildings.

Despite strong y-o-y price rises, quarterly (q-o-q) data showed different pattern. After weak q-o-q growth in Q4 2006 (0.68%) and Q1 2007 (0.90%), in Q2 2007 and Q3 2007 house prices posted quarterly increases of 4.93% and 4.70%, respectively. But in Q4 2007, house prices registered a lower growth of 0.41%. Most probably this is a seasonal irregularity, slight variations are not at all unusual. But on the other hand, it could be the start of something deeper.

Small households live in multi-dwelling buildings

In terms of volume, around 29,832 new dwellings were completed in 2006, considerably up on 2005’s 23,000 new dwellings, and a significant rise from the 12,000 average annual completions from 1995-2000.

In Sweden, about 16% of households live in multi-dwelling buildings in owner-occupied apartments. A small proportion of households, about 7%, live in one- or two-dwelling buildings that are owner occupied or rental dwellings, and even fewer, barely 2%, sublet rental apartments.

Smaller households, often consisting of only one person, mainly live in multi-dwelling buildings while larger households usually live in one- or two-dwelling buildings. More than 70% of one-person households live in multi-dwelling buildings.

Interest rates have been getting higher

Swedish interest rates have followed those of the European Central Bank upward. The Riksbank successively raised the repo rate to 4% during 2007. The record low was the 1.5% rate in effect from July to December 2005. Mortgage rates are marginally higher than the repo rate. In the coming months monetary policy decisions to be taken will involve striking a difficult balance between, on the one hand, the recent rise in inflation, and on the other, the fact that the economy is currently in a phase of modest deceleration.

The annual growth rate for loans to households amounted to 10.8% in December 2007, compared to 11.9% the previous month and 12.2% in December of 2006. Of the total loan volume to households at SEK1,963 billion, SEK1,263 billion went to housing, or 64% . The annual growth rate on loans for households' housing has dropped since November when it was 12.% to 11% in December m-o-m.

Lending for mortgages in Sweden has traditionally been predominantly fixed-rate, rather than floating rate. This dominance of fixed-rate loans cushions the housing sector against sudden interest-rate fluctuations.

Distortions in the housing market

There is no buy-to-let market in Sweden. The Swedish rental market is strictly regulated. Rent controls and tax rates mean it is unprofitable for individuals to buy to rent.

A large part of the sector is publicly-owned through property companies controlled at the municipal level. The number of municipal dwellings is however being reduced at a faster rate than new units are established. Eight per cent of the Swedish population is queueing for a new apartment, with an average waiting time of 10 years.

Lately, there has been a trend to convert public housing into private property. Nevertheless, quasi-ownership rights for tenants coupled with the legal design of lease contracts have barred the emergence of a proper rental market. Consequently, housing is bought for occupation, not for renting.

Rents in Sweden are largely historic cost-based, and reflect the age composition of the social housing stock. Swedish law requires that rent-setting be negotiated between tenant organizations and municipal housing companies (MHCs) or private landlord organizations.

Private rents, in the negotiation process, are compared to social housing rents, which leads to rent conformity across tenures. This rent-setting structure means that in attractive central urban locations, rents are often well below market levels. This limits the profitability of private rental markets. Thus, the private rental sector has declined significantly over the past two decades.

Recent reforms

Radical reforms in property taxation and subsidization were enacted with the 1990/91 tax reform, significantly reducing the direct and indirect fiscal costs of housing policies.

In 2006, taxes for owner-occupied housing and tenant-ownership associations and their members were reduced by about half of what would be required for neutrality vis-à-vis other capital taxes and interest deductibility.

In 2007, imputed rent taxation was abolished. Imputed rent meant that all house-owners were assessed on a deemed rent, and taxed on that, whether they actually rented the unit out or not. Since when an owner-occupied house is constructed, value-added tax (VAT) is paid on building materials as well as construction services, imputed rent taxation represented a kind of double taxation.

The Ministry of Finance has announced that the government is planning to abolish real estate tax in the housing sector from 2008, partly replacing it with a municipal fee decoupled from real estate prices.

Modest slowdown in Swedish economy

GDP growth fell considerably last year, from 4.4% in 2006 to 2.8% in 2007. However, it still clearly exceeded the 1.6% average growth of the last decade. GDP is likely to grow by an annual average of 2.9% in 2008 and 2009.

Inflation in Sweden has been one of the lowest among European countries since the mid-1990s. In 2007, inflation was 1.8%, slightly higher than 2006’s rate of 1.5%. Inflation is expected to be 3.7% in 2008 because of rising home mortgage interest rates.

Despite the economic slowdown, employment and the number of hours worked have increased rapidly since 2006. This strong tendency was still present in 2007 with the number employed persons increasing by 2.4%. The unemployment rate has dropped rapidly in the past two years, from 7.7% of the labor force in 2005 to 6.1% in 2007. In 2008 and 2009 the unemployment rate will stabilize at 5.6 percent.

Sweden - more data and information

• Swedish house prices, rents, and letting income - real data!
• How expensive are houses in Sweden, compared to the rest of Europe?
• How much rent can be earned from Swedish property, compared to the rest of Europe?

Your Comments

posted by Mattias Stromberg | 2008-02-27

Student, Stockholm

Post a comment