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Sweden's Housing Construction Sector Shows Signs of Stabilization Amid Supply-Demand Discrepancy

Sweden's housing construction shows signs of stabilization amid a 30-year low, with demand still outstripping supply.

By Athena Xu

4/17, 00:58 EDT
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Key Takeaway

  • Sweden's housing construction shows signs of stabilization, with March data indicating a halt in sharp declines since August 2021.
  • Current construction rate is only a third of the 67,300 units needed annually to meet demand, highlighting a significant supply gap.
  • Economic factors like unexpected inflation rise and home price increases provide context to the housing sector's potential recovery.

Stabilization in Housing Construction

Sweden's housing construction sector, which has experienced its most significant downturn in over 30 years, is showing signs of stabilization. According to data from Byggfakta, an indicator for housing starts in March remained largely unchanged, suggesting a halt to the sharp declines observed since August 2021. Tor Borg, head of analysis at Byggfakta, noted, "The housing indicator is making it increasingly clear that construction starts have bottomed, and even recovered somewhat in the last six months." This stabilization could be attributed to developers initiating projects to utilize granted subsidies or a more optimistic rate outlook and stabilizing costs. However, Borg also emphasized that the recovery is modest and starts from a very low base.

Housing Demand Outstrips Supply

Despite the slight recovery in construction starts, the number of new homes being built is still not sufficient to meet the existing demand. Swedish authorities have estimated that there is a need to produce 67,300 housing units annually to keep up with demand. Byggfakta's data indicates that the current annual rate of new construction is only about a third of the required amount. This significant gap between supply and demand underscores the ongoing challenges in the Swedish housing market, despite the recent signs of stabilization in construction activity.

Economic Context

The stabilization in housing construction comes amid broader economic developments in Sweden. Recent reports have highlighted a surprising uptick in inflation, leading to increased speculation about potential rate cuts in the coming month. Additionally, Sweden's economy managed to eke out growth in February, contrary to expectations. Meanwhile, Swedish home prices have continued to rise, indicating a thawing in the market. These economic factors provide a backdrop to the current state of the housing construction sector, suggesting a complex interplay between monetary policy, economic growth, and housing market dynamics.

Street Views

  • Tor Borg, Byggfakta (Neutral on Sweden's housing construction sector):

    "The housing indicator is making it increasingly clear that construction starts have bottomed, and even recovered somewhat in the last six months... It could be driven by developers that need to start projects that have been granted subsidies, or by a more positive rate outlook and stabilizing costs. Either way, the recovery so far is modest, from a very low level."