To build or not to build, is this the problem?

Quite much has been said recently about the shortage in housing supply specifically in larger cities of Sweden. Hans Lind, professor of Real Estate at KTH alleges that the four major construction corporations deliberately strangle supply of housing. Researcher in housing, Rune Wigren, also thinks that those four giant construction firms in the country are not competitive enough with each other. The prices of building materials have increased more than the salary of construction workers. This should have not been the case had production of buildings experienced a corresponding growth.

During the last decade, the average number of residential units per thousand inhabitants constructed in Sweden has been approximately half of that in other Nordic countries. The National Housing Credit Commitee (BKN) has evaluated that 35000-40000 new appartments should be built in Sweden every year. This used to be realized before the financial crisis in 2008. The amount was then reduced to 15000 houses per year during 2009 and 2010. The figure for the year 2012 is estimated to be 2500.

The amount of investments in residential buildings is naturally influenced by both house prices and production costs. It is however an almost established principle an increase in house prices yields in an increase in construction rate. Bengt Hansson, analyst at BKN believes that such high prices as those of today is thus a very suitable situation for construction. The International Collaboration Organization (OECD) asserts however that this is the high prices of building material has slowed down the construction pace. 

Jonas Granström, head of housing development of the Swedish headquarter of Skanska (the biggest construction corporation in Sweden) blames the economic situation for decrease in housing construction despite huge demand in the market. Granström recognises that the prices for houses have had no change for a long time. He believes that this is a result of well-thought initial prices.

Source: http://www.dn.se/ekonomi/de-vill-inte-bygga-bostader

To sell or to build: this is the dilemma!

Followed comes a summary of reports and forecasts on recent and future shifts in land prices in Sweden. The text is mainly a translation of the article by Jonas Lindmark Morningstar, specialist at Morningstar. The most appealing point in the article to me was that it reflects best the most dominant approaches in Swedish spatial planning procedures: strict governmental regulation and control over construction rules, sustainable planning and participatory planning. The three aforementioned concepts are evident through importance and strong impacts of legislation, environmental measures and residents’ opinions on predominant planning routines:

New planning regulations (proposition 2009/10:170) will come into force in Sweden in two months from now. One possible effect is an increase in provision of plots for villa construction which will in turn decrease land prices.

Normally, an increase in prices results in an increase in supply. In the case of land lots, however, a different rule governs: supply of land for villa construction in Sweden has fallen 30 percent in 2010 compared with 2008 while there is evidently a high demand. The number of constructed villas in recent two decades has nevertheless decreased to one third compared with the same time period before 1990.

The reason why municipalities are not that willing to assign land for villa are numerous and not without ambiguities: current regulations have made housing development a less profitable and more risky occupation; more strict environmental measures are being taken by authorities; more objections are made to construction permits by neighbors; many land owners hesitate to sell their lots in hope of higher prices – which is in fact a reliable forecast. Even the monthly rent earned after construction is not a sufficiently tempting motive for land owners to construct since land prices increase in a much higher pace than prices of the houses do.

The new planning and construction regulations aim at simplifying and speeding up the process of land assignment for villa construction. Nevertheless, interest rates in Sweden are currently so low that an access in land assignment for villa construction does not necessarily entail an immediate fall in land prices.

Experts from Building Administration (Boverket) and other responsible organizations believe that current situation will be followed by an increase in interest rates and the trend will persist until house prices are reduced down to construction costs. At the time land prices will start falling in a rapid pace just as they had been increasing previously.

Source: http://www.byggahus.se/artiklar/ar-din-tomt-vard-mer-huset

News on recent changes in housing market in Sweden

Just came across two contradictory pieces of news on changes in housing prices in todays newspapers. Dagens Nyheter addresses a recent fall in prices, while E24 reports in increase during the last quarter of the year in its headline. Eventhough time spans are different, such widely adverse standpoints towards an issue sound amazing! Here comes a summmary of the two:

Dagens Nyheter: House price had a 4 percent decrease in December:
- The fall in prices of residences in December has been 7, 3 and 4 percent respectively in Malmö, central Stockholm and Göteborg.
- Prices have decreased in a more rapid pace in those towns having recovered faster from financial crisis.
- There is no risk of housing bubble in Sweden.
- During the last decade, price of housing in Sweden has risen up to 153%; that of vilas 72%
- The highest increase in housing price in Sweden in recent decade: 218% in Göteborg
- The highest increase in villa price in Sweden in recent decade: 131% in Malmö

E24: Compared to last year, house prices have increased:
- The highest increae was 4% in Gotland
- During the last quarter of the year, prices in Stockholm and Göteborg have been unchanged.
- In the same period, prices in Malmö have increased 2 percents.