A home for everyone

The housing shortage is one of the most challenging issues facing our immediate future. According to the Swedish housing agency, Boverket, there will be a need for over 700,000 newly built homes over ten years to manage the expected population increase until 2025. Hemnet, a Swedish website for house hunting, is overrun with attractive homes at record-high prices, for sale to an indebted middle class, while newly arrived immigrants are stuffed in groups of forty or fifty in a single apartment. The situation reflects not only upon a time of increasing inequality, but also comprehensively illustrates the politically awkward development of the housing issue, so central to the Swedish welfare model.

Already in the 1930s, inferior housing was seen as a cause for low nativity and poor health. Investing in good housing, thus, became a cornerstone of the Swedish welfare model; “the dirt” was to be built away. Supported by government subsidies, Sweden developed the world’s highest housing standards in just a few decades, planned according to modern science, engineering, and rationality. The restructuring of fiscal policy in the 1990s, however, caused these government subsidies to vanish and the rate of new housing projects consequently lowered. Since then, homebuyers through increasing loan burdens have managed many of the costs. As a result, most new housing projects are safe investments appealing to affluent target consumers. The gradual development towards a housing-based work life where most self-respecting municipalities attempt to create attractive housing environments, appealing to creative professionals, has reinforced this pattern. A home that opens up for all of life’s possibilities, without forcing the residents to abstain from anything is the ideal.

When it comes to new construction, the road ahead looks even more difficult. Many of the new homes are to be built in designated areas in the major cities, as a quid pro quo for the government’s investments in subways and railroads, as part of various negotiations concerning Sweden and Stockholm. The costs of these investments are gradually shifted onto those who will benefit from them, in the form of cofinancier programs. This will obviously influence the price trends ahead, and add even further to costs that are already high.

Price levels and increasing debt burdens also lead to many Swedes indicating that housing is an ever-greater cause for stress. Likely this is a result of many alarming headlines about so-called “debt traps”, despite that the average household expenses for housing have remained more or less level for a very long time. Swedes, simply put, do not spend more money on housing today than they used to. On the other hand, there are greater expectations on what housing means today, compared to earlier decades. The great “makeover” trend in television, showing how a middling home can become amazing with just a little styling is one strongly contributing factor to that Swedes, in general, are less satisfied with their homes. Home today isn’t only a roof over your head – it’s also supposed to be stylish!

All in all, this means that the issue of housing for everybody is not only a matter of a roof and four walls. It’s also a matter of satisfying an expectation around what a proper home should contain. In past years, the debate was based in a predefined standard of living set by authorities, but today it is demand-driven development that defines what counts as “good living”. On example of this is the growing trend of compact living. It is better to have the right area than the biggest area, all in the name of being able to live centrally. It could be argued that a home should be measured by cubic meters rather than square meters, given that it often reflects the willingness to pay better, and is a partial explanation for the extremely high costs per square meter regularly published in the tabloids.

Another example of people viewing housing and living differently today, compared to the old governing authorities, is the changed usage of real estate taking place. People work from cafes, hotel lobbies, or home office solutions. Concerts are held in ordinary living rooms, and open office After Work-events compete with bars and restaurants. Even at home, the different rooms are used in entirely new and different ways than what was originally intended. Limitless and unbounded solutions are highly trendy across the world, and they have a powerful influence on the question of housing for everyone. It’s fair to say that functionalism is dead – at least in the eyes of the users.

This is central in understanding the housing of the future. It’s a matter of conflict between the demand-driven housing market, and the governmentally defined “right to a home”. The load-bearing question, fundamentally unanswered, is simply whether housing is a societal right or a product like any other on an open market. How will Sweden manage to build housing that doesn’t add to a mountain of debts, or build homes with affordable price tags for less wealthy people, if politicians don’t dare touch the issue with a ten-foot pole? The answer to that question may seem elusive, but it is entirely crucial for understanding where homes will be built – and for whom. Simply put: Who’s going to be picking up the tab?

Today, the question of payment is frequently postponed. On the one hand, politicians allow Swedes to become highly indebted, from which follows that very few can count on ever paying off their mortgages. On the other hand hopes are high that streamlining of the entrepreneurial line will create lower production costs and slow down the increase in costs of new constructions, which is reasonable since the productivity development in construction is remarkably low compared to other industries.

The great divider in the political landscape is whether the long-term solution is that individuals own their homes, or not. Internationally, Sweden has a relatively big share of rental housing, and there is no concerted effort towards paying off mortgages. In most countries, citizens are expected to own their homes and be out of debt over a twenty-five year period. For example, a neighboring country like Norway has a completely different solution in which the housing market consists of condominiums, where even those without good finances, through a wide selection of public funding are encouraged to obtain and pay for their own homes.

There is also a constant worry for a housing bubble. This despite the fact that today’s price hikes correspond to a real increase in demand in the cities, and a sufficient share of the middle class have income levels high enough to handle the situation given presently low interest rates. It’s likely they would be able to handle even higher interests than today. The real problem will arise if there’s a significant economic collapse with subsequent markdowns, forcing homeowners to sell at a loss. This would likely cause the entire economy to slow down, since the capacity for other consumption will be drastically reduced. This is also the constant dilemma of the Riksbank as it determines future interest rates.

All in all, this makes it difficult to cleave the Gordian knot of housing. Whatever the case, there’s evidently insufficient political will to do so; if politicians in Sweden really had wanted to create housing for everyone, they would have been able to do so long ago. It seems that the present situation will, consequently, last over the coming years. In the long term, however, something will have to give to prevent a serious collapse or a revolt among those who cannot obtain housing an affordable price given their finances.

The keys to all this lie within politics. We can see four principal future scenarios, based on what road the national politicians choose when it comes to housing and financing in the years ahead. Either, the government retains a passive financial role or they choose to enter in a financially active position. Independently of this choice, it’s also a question of whether the political road ahead continues to focus on rental apartments as the fundament, or if they choose a path of increased homeownership. These two possibilities give rise to the following four scenarios:

  • Lifestyle housing dominates: A situation in which the market, and individual would-be homeowners, will have to take the risk of new constructions and renovations of existing property. The states’ ability to govern is reduced to changes in legislation, meant to increase individual opportunities for homeownership, as well as marginal incentives and subsidies for certain vulnerable groups.
  • The Norwegian way: This could happen if the government chooses a more active financial role, combined with a prominent political will to increase homeownership in Sweden. Likely, this will happen through reinforcing individual would-be homeowners’ ability to demand ownership of their homes, even for less wealthy groups – in accordance with the Norwegian model.
  • Blindly towards the future: The present path could continue to work, even if it leads to increasing inequalities in housing in Sweden. The government chooses a passive role as primarily a simplifier and codifier of legal systems, as the rented apartment continues to be the only option for those lacking significant income.
  • Return of the housing policy: The rental option continues to be the dominant model for answering the housing crisis, but to manage the difficulties of financing this at reasonable costs, the government guarantees stability through more active housing politics. This could, for example, occur through support for real estate developers (as in the sixties) or through support for consumers. Both paths are possible in this scenario.

The conditions for creating opportunities for housing to all Swedes differ remarkably between the different scenarios. Consequently, it’s important for politicians to take a firm stance and actively choose a path forward – and be clear about their choice, even though it might cost votes. But perhaps this scenario isn’t especially likely…

For investors and other actors in the real estate market, however, these questions are quite fundamental. What prospects will real estate companies have for their future business models? What will be their responsibility in ensuring affordable housing for all? And who will take the financial risks involved?

This article is based on a report produced for the members of the network Kairos Future Club, read more about membership here.

By Erik Herngren