Risk of future housing surplus – smaller municipalities most vulnerable
News, Economic Commentaries There is an increasing risk that Sweden’s housing supply will exceed demand over the next decade. This trend may lead to rising vacancy rates, especially in smaller municipalities, which in turn may affect revenues and property values for housing companies. The risks to financial stability are assessed as small at present, but local imbalances may worsen over time and lead to other economic costs. These conclusions are drawn by Karin Östling Svensson of the Financial Stability Department in a new Economic Commentary.
Karin Östling Svensson, economist, Financial Stability Department
The population is growing more slowly than before – only 1.9 per cent is expected to be added by 2034, compared to 8.6 per cent in the last decade. Fewer births, more deaths and lower immigration contribute to this trend. It is possible to see already that the population of one in five municipalities is declining, and more than half of the country’s municipalities are expected to have a declining population going forward. This means that demand for housing may fall, especially in rural municipalities where vacancies in the rental stock have already started to increase.
Some municipalities may have a significant surplus of housing. The surpluses are expected to hit rental housing in particular, as it is assumed that households can more easily leave rental housing than owner-occupied housing when demand changes. The analysis shows that smaller municipalities with fewer than 25,000 inhabitants are those most clearly in the risk zone.
While increased vacancies may put pressure on rental income, property values and thus the repayment capacity of property companies, the banks’ overall exposure is assessed as low. Most of the collateral volume in rental housing properties is located in low-risk municipalities.
Overall, the analysis does not point to any serious risks to the banking system or to financial stability. However, in some municipalities, incipient imbalances may intensify over time and lead to other socio-economic costs if property values fall, willingness to invest declines and local challenges increase.
About the Economic Commentaries
The Riksbank's Economic Commentaries contain, for instance, short analyses and debate articles. The opinions expressed in Economic Commentaries are those of the authors and are not to be seen as the Riksbank's view.