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LTD: Proprety prices and loans in Sweden

by someone Thu Aug 28th, 2008 at 12:04:25 PM EST

A small collection of articles about some possible concerns in the Swedish property market.

Många är högt belånadeMany with high loans
För tolv år sedan, 1996, låg den rörliga boräntan kring 9-10 procent. Och tidigare var den ännu högre. Men om räntorna stiger till den nivån i dag skulle det få helt andra effekter än i mitten av 1990-talet.Twelve years ago, in 1996, the variable mortgage interest rate was around 9-10%. And earlier it had been even higher. If interest rates were to increase to that level today it would have completely different effect than in the middle of the nineties.

Oooo. That sounds ominous. I wonder how the Swedish mortgage and property situation looks right now?


Till stor del beror det på att svenskarna då hade mycket lägre lån på sina bostäder än nu. Både i kronor och i andel av bostadens värde.To a large extent this is because the Swedes had much lower loans then. Both in absolute sums, and as a fraction of the value of the house.
Snittpriset på ett småhus i Sverige var 679.000 kronor 1996, nu är det 1.782.000 kronor. Lönerna har inte tillnärmelsevis höjts i samma takt.The average price of a house was SEK 679000 then, today it is SEK 1782000. Incomes have not gone up to nearly the same extent.

That's an increase of 162% of the house price. Meanwhile, average income rose 44%, and median income 42%. The average and median incomes are SEK 242000 and SEK 230000 respectively, making the average home 7.4 yearly salaries, up from 4 in 1996.(Income figures from SCB.se)

Samtidigt som priserna stigit har det också varit möjligt att låna nästan hela summan. Det gör att många, framför allt unga hushåll, har bostäder som är väldigt högt belånade.At the same time as prices went up it also became possible to borrow to 100% of the house value. This means that many, especially the young, have very high loans.

Yes, the simultaneous rise in house prices and the ability to borrow a larger fraction of the value. One could start speculating on how this new found possibility of not putting a down payment may have influenced peoples abilities and willingness to pay more for a home, and thus drive the prices yet higher, requiring more borrowing...

So, if interest rates go up people may not afford their houses any more. And definitely not be able to buy new ones. I guess they'll have to rent then.

Högre hyror de kommande årenIncreased rents the next few years
Hyrorna för 760.000 av allmännyttans 820.000 lägenheter är färdigförhandlade. Årets höjningar landar i snitt på 2,38 procent, mot 1,64 procent förra året, skriver tidningen Bofast. Hos de privata bostadsbolagen hamnar höjningarna på en liknande nivå.Rents for 760000 of the 820000 public rental apartments are negotiated. This year's increase is on average 2.38%, compared to 1.64% last year, according to the magazine Bofast. Among the privately owned rental properties the increases will be of a similar size.
- Det finns inga tecken på att andelen ska bli lägre, snarare tvärtom. Frågan är hur mycket högre andelen kommer att bli, säger Roland Sernlind, förhandlingsansvarig på Sabo, de allmännyttiga bostadsföretagens organisation."There are no signs of a decrease. The question is rather how much higher the share [of income spent on rent] will be", says Roland Sernlind, head of negotiations at Sabo, the public building companies' organisation.
De främsta anledningarna till hyreshöjningarna i år är högre räntekostnader och ett stort underhållsbehov, enligt Sernlind.The largest reason for the increases are higher interest rates and a large need of upkeep, according to Sernlind.
......
Hos de privata företagen är behovet av underhåll inte lika stort som inom allmännyttan eftersom man hållit efter fastigheterna bättre.Among the private rental companies the need of upkeep is not as large a factor as the buildings are in better shape.
- Men i stället drar husen mer i värmekostnad i och med att de är äldre, säger Eriksson."But the buildings will have higher heating costs instead, since they are older", says [Per-Åke] Erikson, [CEO of the private Fastighetsägarna Sverige]
Uppvärmningen står för omkring 15 procent av hyran vilket gör företagen känsliga för fjärrvärmekostnaden. Den i sin tur sätts ofta i förhållande till priset på olja, som stigit kraftigt i år.
Heating is around 15% of the rent and makes the companies sensitive to district heating costs. It normally follows the oil price, which has gone up a lot this year.

Well, not cheaply, perhaps. Turns out rentals are also tied to the interest rate. But at least there are apartments to rent, right?

Färre hyresrätter bland nybyggenFewer rental apartments among new construction.
Andelen påbörjade byggen av hyreslägenheter minskar kraftigt, och tydligast är skillnaden i storstäderna. Utvecklingen oroar Hyresgästföreningen.The share of rental apartments of new construction projects is decreasing massively. The difference is largest in the cities. The development worries the renter's association.
Av de flerbostadshus som byggs utgörs allt färre av hyresrätter. På bara några år har andelen minskat från över hälften till under en tredjedel visar nya siffror från Statistiska centralbyrån.
Of the apartment buildings currently under construction fewer and fewer units are rental. In only a few years the share has decreased from half to under a thirds, according to new numbers from the Swedish Statistics Bureau.
- Det går käpprätt åt fel håll. Behoven är dramatiskt på väg att öka med tanke på alla 80-talister som nu ska ut på bostadsmarknaden. Det har byggts lite under flera år, och att i det läget se kraftiga minskningar gör mig otroligt bekymrad, säger Barbro Engman, ordförande i Hyresgästföreningen."It goes in exactly the wrong direction. The needs for rental will increase dramatically now when the children born in the 80s are moving away from home. Very little has been constructed the last few years, and to see large decreases makes me very worried." says Barbro Engman, chairman of the Renter's Association.
Tydligast är minskningen i storstadsregionerna. I Stockholm och Malmö var 11 procent av de nyproducerade flerbostadshusen hyresrätter det första halvåret, ett ras från 39 procent i Stockholm och 18 procent i Malmö jämfört med året innan.The decrease is most pronounced in the large cities. In Stockholm and Malmö 11 percent of new buildings where rental during the first half of the year, a decrease from 39 percent in Stockholm and 18 percent in Malmö the year before.
- Det är olyckligt eftersom det är i storstäderna man behöver hyresrätter. Där behöver folk vara rörligare och byta bostäder i större utsträckning, men i stället töms städerna på hyreslägenheter, säger Stellan Lundström, professor i fastighetsekonomi vid Kungliga Tekniska Högskolan i Stockholm. Han anser att hyresrätten missgynnas i och med de slopade investeringsbidragen och räntebidragen förra året. Samtidigt har fastighetsskatten för villor och bostadsrätter sänkts, vilket gör dem till attraktivare byggprojekt.
"This is unfortunate, because it is in the large cities the need for rental property is largest. It is there people need to be more mobile and change housing more often, but instead the cities are being emptied out of rental apartments", says Stellan Lundström, Professor of building economy at the Royal Polytechnic in Stockholm. He thinks rental properties were disadvantaged when investment subsidies and rental benefits disappeared last year. At the same time property taxes for single homes and tenant-owned apartments have gone down, making them more attractive construction projects.

Ah, that doesn't look so good. Wooops. Deprioritized rentals in favour of owner occupied dwelling. Cause only losers rent, you know. In fact, the more expensive house you have, the better you make out after the property tax was abolished. It was replaced with a fee of 6000kr, or at most 0.75% of the taxation value. Welcome to the ownership society, I guess...

It still remains to be seen if house prices will indeed crash. So far they have had a hell of a run.
(Data, scb.se)

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I was under the impression (can't remember where from) that scandinavian countries are far more likely to see people renting in favour of buying as a general rule.  Is this just some myth I fell for?
by In Wales (inwales aaat eurotrib.com) on Thu Aug 28th, 2008 at 12:29:51 PM EST
Well, my impression is that the current government has reprioritized even more towards property owners, but house ownership has long been encouraged and supported. Subsidies for newly built houses is not new, for example. I think they are not taxed for the first 5 years, and after that at a discounted rate for 5 more years. Nothing wrong with helping people buy houses as such, but I think what has changed since a few years back is the ease with which loans are obtained, and how much of the value one can borrow. As in other parts of the world... And the recent elimination of the property tax was really a giveaway to those with large, expensive houses.

A lot of rental units where built during the Million Programme:Million Programme - Wikipedia, the free encyclopedia

The Million Programme (Miljonprogrammet) is the common name for an ambitious housing programme implemented in Sweden between 1965 and 1974 by the governing Swedish Social Democratic Party to make sure everyone could have a home at a reasonable price. The aim of the programme was to build a million new dwellings in a 10-year period (hence the project's name). At the same time, a large proportion of the older unmodernised housing stock was demolished.

In the end, about 1,006,000 new dwellings were built. The net result was an increase in Sweden's housing stock of 650,000 new apartments and houses, with a general rise in quality [1], arguably at the expense of aesthetics.

I have no idea of what the development was after that, but it seems new rental units are now definitely on the decrease.

I don't have the eyes on the ground in Sweden, so to speak. But these three articles seem to suggest that things might get bad if/when interest rates go up and property prices start to fall.

According to some numbers I quickly dug up, it seems the average debt per person was SEK 219000 in 2006, up from SEK 180000 in 2004. I have been unable to find longer timeseris on this, but that's quite an increase on two years.(22%) The average debt is now approaching the average income.

by someone (s0me1smail(a)gmail(d)com) on Thu Aug 28th, 2008 at 12:55:09 PM EST
[ Parent ]
Lots of rentals has been sold to there tenants the last decade or so, especially in Stockholm. When the right wing is in power locally, they sell of the rentals and do it for bargain prices. Those who can afford to buy make a hefty profit and who cares about the rest?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Thu Aug 28th, 2008 at 09:17:13 PM EST
[ Parent ]
We need a constitutional amendment that makes selling off public property at a fraction of its value a punishable offence. Otherwise this bullshit cycle of piratisations and re-nationalisations (i.e. right-wing handouts to favoured groups) is going to continue indefinitely.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 29th, 2008 at 11:14:50 AM EST
[ Parent ]
JakeS:
Otherwise this bullshit cycle of piratisations and re-nationalisations (i.e. right-wing handouts to favoured groups) is going to continue indefinitely.

It is no longer a case of either Public = "State owned", or Private = "owned by a (Joint Stock Limited Liability) Company or 'Corporation' ".

It is in fact quite possible to use trust or partnership law frameworks, instead of company law, to "unitise" production, or revenues from sale of production of assets in public ownership.

It's in this "Both/And" space that the solution lies, IMHO, in new "Open" forms of Capital of indefinite duration.

So this bullshit cycle won't continue indefinitely: it will end indefinitely.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Aug 29th, 2008 at 06:55:13 PM EST
[ Parent ]
I have no idea of what the development was after that, but it seems new rental units are now definitely on the decrease.

This is because we have regulated rents but free pricing of non-rental homes. It's just not profitable to build rentals.

Like I wrote in an earlier thread:

The problem in Sweden is that people want to live in rental housing, but none is built. Why is none built? Because rents are contolled depending on the standard of the apartment. This, absurdly enough, excludes location of the apartment.

It means that an inner city apartment from the late 19th century with 3,4 metres to the roof might have the same rent as some crappy anti-human 1970's housing project full of criminals and addict far away in some remote forgotten suburb. The idea is that there shouldn't be segregation based on income. The reality is that people with contacts, savvy, wealth etc manages to snag the good contracts in all kinds of illict ways, and adding insult to injury their rents are subsidized by the poor people in the suburbs.

The market for for privately owned apartments is free which means that companies only build these and never rental properties, as it is is impossible to turn a profit when building new rental properties.

The market should be liberalized ASAP.



Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Aug 30th, 2008 at 08:40:14 AM EST
[ Parent ]
Until the late sixties (IIRC) Danish tax codes favoured rental over ownership - for the obvious reason that most people lived in rental property, on account of most people being working class. So to piss off the renters was to lose the next election.

That started to change in the latter half of the 20th cent., but it didn't get really out of hand until the last days of Nyrup III, where the tax structure was changed in ways that favoured homeowners obscenely over renters.

And then of course the current disaster of Fogh I-III. At the risk of repeating myself, it's my distinct impression that creating a housing bubble has been a direct priority for them.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 28th, 2008 at 03:36:43 PM EST
[ Parent ]
It still remains to be seen if house prices will indeed crash. So far they have had a hell of a run.

At the end of May, 1999 I purchased a house in Los Angeles, (Northridge), that increased 280% in value by the time I sold it in November, 2005.  The numbers you cite show an increase of 262% in Sweden since 1996.  Not quite as large a run-up and over a few more years, but home prices didn't start appreciating until about 1998 in LA. The situation appears precarious there.  

Are prices still increasing?  Have there been significant job losses?  Have there been "liar loans," (no income verification,) or NINJA loans, (no income, no job no assets,) in Sweden?  Those were the signs of the apocalypse in LA.  Anyone who is in a position to sell in a high priced market and relocate to a low price market might want to consider doing so now.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Aug 28th, 2008 at 04:44:27 PM EST
Forgot to mention, prices in my old neighborhood in LA are down at least 30% from when I sold.  They might go to down 40%.  Sales volume is increasing, but most of it is for properties in foreclosure or properties now owned by banks.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Aug 28th, 2008 at 04:48:36 PM EST
[ Parent ]
Are prices still increasing?

No, the bubble looks about ready to pop.

Have there been significant job losses?

Well, there has been some as we are heading into recession. But no crisis yet, just back to the same situation as a couple of years ago.

Have there been "liar loans," (no income verification,) or NINJA loans, (no income, no job no assets,) in Sweden?

No, but the amount you need to put up yourself has been diminshed over the last 15 years or so. Think I saw some add half a year ago about loans without you needing to put up anything, you could borrow the whole amount for buying a house.

All in all, I would say that we definetly have a bubble on our hands, but that the situation was worse in the late 80'ies. That bubble burst in august 1990 and ushered in a deep crisis. But there was more outright speculation then. Or maybe it is just better covered this time.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Thu Aug 28th, 2008 at 09:26:33 PM EST
[ Parent ]
Situation is similar here in Australia...Prices are slowly going down almost everywhere and interest rates were going up for quite sometime...Now looks like they are going to hurt economy and they are talking about lowering interest rates.
Here it's Australian dream to own a house and I suppose there are more owners then renters ("losers"as you said).
I'll look for data but I think it's pretty much similar to what you described here...
We bought a house here in Brisbane in 1998 for $138000 (at the time we needed 10 % deposit to put).Later also no deposit loans were available and now I am not sure what's the case. At some point say last year we could  sell our house for $420000 (3X up).Now probably around $400000. We are not selling at all but just to make a picture.Income in the main time rose about 1/4 up.

Science without religion is lame, religion without science is blind...Albert Einstein
by vbo on Sat Aug 30th, 2008 at 04:03:29 AM EST
'98 & '99 were the golden times to buy in California.  If you plan to stay put, declines are just paper losses.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 1st, 2008 at 11:44:41 AM EST
[ Parent ]
Heating is around 15% of the rent and makes the companies sensitive to district heating costs. It normally follows the oil price, which has gone up a lot this year.

Of course the reason the district heating costs are coupled to oil prices is because they can be. Not because they themselves have higher costs (the don't fuel their plants with oil) so the effect is just fatter profit margins for the district heating companies.

If our local politicians here in Uppsala had the slightest lick of sense they would have understood what a "natural monopoly" is. But they didn't, and they sold the municipial not for profit heat plant.

A small blessing is that they sold it to the national energy champion Vattenfall so all the robber baron profits end up in the treasury department as a budget surplus.

They weren't as lucky in Stockholm where they sold the heating company to Fortum, the partly privatized national energy champion of Finland.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Aug 30th, 2008 at 08:38:06 AM EST
Who are landlords in Sweden (mostly)?
Here they are private persons (same like it was a case in Serbia).Cost of electricity (heating/cooling included) and phone are not included in price of rent. Lately because of the crises and restrictions renters are paying  for water consumption .
I was under impression that in Sweden Corporations are mostly "landlords". I was surprised to here that prices of rents are state regulated in Sweden but there must be a good reason for that. There were not enough rentals properties ever and prices would skyrocket if they did not regulate. I remember my aunt who lived in Sweden for about 30-40 years being surprised that we as emigrants here in Australia were able to buy a house and get loan. I remember she told me "At the time In Stockholm we had to wait on a waiting list just to rent property"...


Science without religion is lame, religion without science is blind...Albert Einstein
by vbo on Sat Aug 30th, 2008 at 11:00:14 PM EST
Power, heating and broadband are usually not included in the rent, except for student housing.

There are mainly two kinds of landlords, if I recall correctly. Private ones, which are usually corporations or sometimes wealthy individuals, and public ones, usually municipiallities.

There are often very long waiting lists for public owned apartments in attractive areas. I don't think there are waiting lists for private landlords but they must set their rents close to the level of the rents of public houses dependent on living area, amenities and so on (but independent of location!).

Your assertion that there must be a very good reason rents are regulated because they are takes a very positive view on the rationality of Swedish politicians. ;)

The rent regulation in itself is indeed the reason why there are not enough rental housing: if rents were free companies would make profits when building rentals. They don't profit from it today because of the regulation, and hence they don't build anything. The usual left-wing counter-argument here is that the state or municipialities can build rental housing instead, but this always and without exception has led to unmitigated disaster.

The final result is that people who want to rent lose that posibility and instead have to take large mortages to buy apartments. Not good at all, especially if you are young, unemployed, or poor.

Or just think it unwise to concentrate such a huge amount of your wealth in a single asset class, as it is not very likely that your average person with a €200,000-400,000 apartment has few more hundred thousand euros in the bank, or in shares...

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Aug 31st, 2008 at 05:52:35 AM EST
[ Parent ]
My aunt live in Solna and she had to wait and go trough difficulties in order to get that private apartment probably 30 years ago...and it's not cheep.
Thing is in order to have affordable rents in a situation where rental properties are lacking they need to have enough state properties to offer. Otherwise free market will make private rentals properties unaffordable for many. You are right, it's a circle and hard to balance it in a short time. Here rents are on the rise because of the rising cost of the properties. Young people in their 20 and even 30ies more and more stay at home with their parents cause they can't afford to rent even having a flat mates. Not to mention that for generation X as I think they call those youngsters Australian dream to own their own place will be just a dream. They will postpone making families too...Australia more and more reminds me of Serbia on this matter. When I came to Australia 10 years ago it was not a case. Luckily we came on time to be able to fulfill Australian dream. I never thought my children will have to wait for their parents to die to own their place. Like it was a case in Serbia very often.
I know that people in Europe do not care renting...but here it was a temporary solution while they are young and as soon as they make family they would buy. Looks like this will be matter of the past and they'll have to go European way. Strange when you think how rearly populated is this big country comparing to Europe.


Science without religion is lame, religion without science is blind...Albert Einstein
by vbo on Sun Aug 31st, 2008 at 09:30:10 AM EST
[ Parent ]
Actually, the system works in smaller towns. The municipality builds new apartments so that new tax-payers easily can move there, and has every incentive to build the kind of apartments people will want to move to. If you want to, you can test this by calling the municipal housing agency of a small town and pretend you are moving there. You can then have a pleasant conversation about where you should live in relation to your place of work and so on and get some options.

In the cities this system does not work, however, the free rent proposed by the right would do little except raise rents and thus raise profits for private landlords. Of course, there would not be a queue anymore as it would be destroyed by the demand destruction. The main problem here is the limited amount of land in city centers. Combined with urban planning regulations on size of buildings, keeping parks etc, there is little room to build new apartments in attractive areas even if there was a bigger economic incentive.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue Sep 2nd, 2008 at 10:27:56 AM EST
[ Parent ]
Btw, the current system of rent-control was introduced during WWII in a set of price regulations to prevent war profiteering. Then it was kept.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Tue Sep 2nd, 2008 at 10:29:43 AM EST
[ Parent ]


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