“Solving the problems on the housing market is very much a matter of balancing today’s challenges against tomorrow’s gains.” These were the words of Stefan Ingves in his speech at Business Arena Stockholm today. In his opinion, measures that may seem costly today are needed to solve problems that could improve the housing market in the long term.
Insiders against outsiders
The prolonged, steep rise in housing prices is fundamentally due to the housing market being dysfunctional for several reasons. For one thing, housing construction has long been at a low level, which has led housing prices, and thereby also household debt, to increase. For another, we have a tax system that has impeded mobility on the housing market, among other things by benefiting homeowners ahead of renters.
“The situation has distribution policy effects and has created a system of insiders and outsiders on the housing market,” continued Mr Ingves.
The problems require political solutions
Addressing the problems will take efforts in several areas. The Riksbank supports the amortisation requirements that Finansinspektionen (the Swedish financial supervisory authority) has introduced but, apart from these, very little has been done to manage the fundamental reasons for why the housing market functions poorly. “Essentially no politicians have been willing to address the bigger issues, concerning rent regulations, property tax, tax deductions for interest payments and sales taxation of property, for example,” Mr Ingves pointed out.
To achieve a better situation for coming generations, we need to create a new, adjusted price equilibrium on the housing market. This would reduce the differences between insiders and outsiders – the haves and the have-nots. It would also mean that household indebtedness would gradually decrease and would no longer create economic risks in the same way. “I am aware that these measures would affect my generation’s housing assets today. But my opinion is that they need to be implemented so that the housing market in Sweden can function well tomorrow,” Mr Ingves concluded.