There is no monetary inflation in Sweden — the official rate is just 0.9% — but there sure is house-price inflation. Property prices rose 11% in Sweden in Q4 2014, according to Statistics Sweden, the government stats agency, which reported new numbers on Thursday.
Everyone pretty much agrees that that housing in Sweden is in a bubble. With interest rates so low they are negative, Swedes are getting mortgages and putting the cash into stocks and bonds rather than paying down the debt. Economists worry that if the economy takes a downturn, Swedes will be forced to liquidate their stocks and bonds at the same time they sell their houses — and that could cause an economic death spiral.
How bad is it? There is so little affordable housing that immigrants are forced to sleep 10 to a flat and plan their visits to the bathroom, according to Reuters:
“If I needed to go to the toilet in the morning, I would have to wake up one hour earlier for my turn,” said Jean, 48, who fled Syria three years ago. He moved with his wife and five children from one crowded apartment to another, sometimes sleeping 10 in two bedrooms, before finding a permanent flat close to Stockholm.
One way to think about that anecdote is from a supply and demand perspective. There is fierce demand for housing in Stockholm, but rising prices restrict available supply. The knock-on effect of that is that poorer people have to share smaller spaces. So they have fewer toilets between them. A cynic might suggest that the Swedish housing bubble is now so bad it has produced a toilet shortage in Stockholm.
The bubble is also distorting other areas of the economy. The German startup Cuponation (a discount shopping company) wanted to move its HQ to Stockholm from Munich, but 30 staff won’t be making the move because housing is too expensive. Reuters reports that in Stockholm a one-bedroom basement flat “with almost no natural light” currently costs 7.5 million crowns (£610,000 or $880,000).
A black market has grown up in which unofficial rent contracts for flats change hands for inflated sums. You can “buy” a rental room in Sweden for $23,500 or £16,000. The reason? There is no market to incentivise new construction, because rents aren’t set by the free market, according to Reuters:
A regulated market where rents are decided in negotiations or by courts rather than supply and demand means there is little incentive for construction. The wait in Stockholm’s public queue for a rental in the inner city averages 13 years.
Here is a chart showing how little construction is being done: