The Swedish government proposes a plan to make buying a home more accessible to the young; if implemented it would do the opposite.
Across the West millennials and gen z face an unfavourable housing situation. In many large cities where the work and the amenities are housing is almost prohibitively expensive. Just earlier this week I received an advert from a real estate firm which said it had sold an apartment in my area for 132 381 SEK per square meter, which is (at the time of writing) about 15 634 USD or 12 903 Euro per square meter. I don’t think I’m alone in thinking that’s extreme. Fortunately, the Swedish government has recently announced a proposal for solving the housing crisis for the young. If you’ve read my previous post on Swedish housing policy, which can be found here if you’re interested, you won’t be surprised to hear that their plan is counter-productive.
To put the proposal in to some context, let me briefly run though some of the background to this issue. As I’ve illustrated with the square meter prices, housing in Stockholm is very expensive. One of the reasons for this is that the banks require a 15% down payment in cash when buying a home which creates a high barrier to entry, a rule created to ensure that households don’t borrow too much which makes both the banks and the economy more stable. 15% of a standard Stockholm apartment price can easily reach 300 000 SEK (35 433 USD or 29 240 Euros) and saving up roughly a year’s worth of pre-tax income is difficult and takes time. The government has proposed setting up a new form of loan the government would issue to young homebuyers at a favourable interest rate. On the surface this is a good idea; making it possible for the young to have a chance at getting their foot on the housing ladder while still preserving the current rules so as not to endanger financial stability. The problem of course, as anyone with even a passing interest in economics would notice, is that giving more people the means to bid on houses creates a larger demand for the same housing stock which will undoubtably create and increase in price.
Policymaking is always difficult, and housing is a unique market which creates certain challenges for governments wishing to change their housing markets. However, the rules of supply and demand still apply; and in contrast to many other markets housing is a necessity so there’s a natural floor for demand. I firmly believe that the easiest, best, and only way to solve a housing shortage is to build more housing. There are major economic benefits to enabling the young to move to the cities which tend to be the most productive areas, and there’s a security to owning one’s home which shouldn’t be exclusively for the old and rich. As I’ve said, housing policy is difficult to design, yet the government continues to disappoint.
If you found this post interesting please share it with a friend or coworker and come back next week for another one, if you want to read more you can read a previous post about memes here, and you can read all my posts about economics here.
Written by Karl Johansson
Cover Photo by Ali Atakan Açıkbaş from Pexels, edited by Karl Johansson
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