Swedish home shortage that's pushed up prices risks economic harm

A housing shortage in Sweden is pushing up prices to levels close to those in London and threatening to undermine one of Europe's most solid economies.

For decades the building of new homes has lagged Sweden's population growth, slowing labour mobility, raising the cost of housing and pushing up mortgage borrowing and raising fears of a credit bubble.

"We have built around half of what other countries have over the last 20 years. That shows that we have a long-term problem," Sweden's minister for public administration and housing, Stefan Attefall, told Reuters.

"There is a restrictive effect on the recruitment of labour and a reduction in companies' competitiveness in the long term. So there are big economic consequences for society."

Complex building regulations - planning permission can take 10 years in Sweden, against around two in Germany - and rental market controls are major reasons for the housing shortage. But radical measures are unlikely before an election due next year and a catch-up in building will probably take years.

The problem is particularly acute in and around Stockholm, whose two million population is expected to increase by 600,000 by 2030 and where there is already a shortage of around 110,000 homes, according to the Chamber of Commerce.

The Stockholm region is expected to generate almost half the increase in Sweden's gross domestic product up to 2030.

But unless the pace of house building speeds up, Sweden's capital will miss out on around 12.5 billion Swedish crowns (HK$15.3 billion) a year in potential growth, or around 0.4 per cent of 2012 national output, according to a study by the Swedish Property Federation.

While firms like fast-expanding music streaming service Spotify are attractive employers, they often have to help workers - particularly those from abroad - find housing.

"People who start to work for us and don't come from Stockholm have a tough job finding an apartment to rent," Spotify co-founder Martin Lorentzon said.

House prices have nearly tripled in the last 15 years. An average family property cost around four million Swedish crowns in Stockholm and its suburbs, on a par with £383,000 (HK$4.8 million)in Greater London, according to Britain's Centre for Economics and Business Research.

Household debt levels are among the highest in Europe, worrying the International Monetary Fund, the EU and Swedish authorities.

In the early 1990s soaring house prices and credit growth triggered a property crash which pushed the economy into a long-lasting recession.