What Broke Sweden? Real Estate Bust Exposes Big Divide

The seismic changes in Sweden are being exemplified by a half-finished bridge that connects two Stockholm neighborhoods. One side is an affluent area that’s part one of Stockholm’s oldest suburbs. The other side is a cluster of 1970s-era blocks of public housing with a dense population and reputation for being a trouble spot.

Two suburbs, Ursvik and Rinkeby, are separated by a four-lane highway. The divisions in this country, which was founded on egalitarian ideals and is now in the grips of an economic crisis and social crisis, are far more severe than those in other countries. Local politicians claim that the bridge was originally intended for public transport, but is now being used by Rinkeby residents as a pedestrian crossing to get to shops on the other side. They also fear that it will cause crime to spread.

Many want it taken down.It serves as a reminder that Sweden is between France and Switzerland in the ranking of dollar billionaires. However, many poorer Swedes have witnessed the gap between the haves & the have-nots grow in recent years. Inflation has risen over the past 12 month, as well as interest rate rises and a weakening currency. This has led to Europe’s worst house price crash and a decline in household consumption. Despite the turmoil caused by the Ukraine war affecting other European countries, Sweden is the only region whose economy is projected to contract in 2023.

The root of Sweden’s problems is the dysfunctional housing market. This has not only exacerbated but also cemented social divisions.

Due to a shortage in rental properties and razor-thin borrowing, the country’s property boom saw prices rise by nearly 250% over the past 20 years. The lack of housing forced poorer families to live in overcrowded accommodations. This forced others to buy — the value of all mortgages rose 459% over the 20 years up to 2022. According to the latest data from 2021, household debt (including mortgages) had reached more than 200% before the current crisis. This is twice the level found in Germany.

These problems were largely covered up by easy money and a growing economy. Both of these are ending and the system’s vulnerabilities are exposed. A middle class that is over-indebted now faces the possibility of not being in a position to pay their mortgages or even daily luxuries.

The number of corporate bankruptcy filings rose to its highest point in over a decade in January, as construction companies were under increasing pressure. It is expected that the rate of home construction will fall to half the level needed to keep pace with population growth. This creates a vicious cycle which can lead to more housing strain over the coming months and years.The central bank considers real estate lending the greatest risk to the financial system. It has warned about the effects of increasing household debt on everything, from consumption to bankruptcies or bank losses. The central bank has called repeatedly for tax and housing reforms, with Stefan Ingves, former governor, criticizing the low property tax.

K2A Knaust & Andersson Fastigheter AB is a manager and builder of rental apartments. It has lost 70% of the market value since Riksbank raised rates last year. Market uncertainty has caused it to delay almost all its construction starts. Johan Knaust, Chief Executive Officer, stated that the market uncertainty is a major problem. Construction will remain in a vacuum.

The government is facing increasing problems. Despite the fact that unemployment is relatively stable, Ericsson AB, the telecom-equipment manufacturer, and Electrolux AB the appliance manufacturer have announced job cuts. However, the increase in bankruptcies as well as the slowdown in the economy could lead to a change. The collapse of Silicon Valley Bank has caused a $2 billion loss to Sweden’s largest pension fund. Even membership in NATO, which was expected to be quickly accelerated after Russia invaded Ukraine, is now embroiled in geopolitical disputes.

Susanne Spector, Nordea Bank economist, said that there is a possibility that residential construction slows by more than 50% in the coming year. This will impact GDP, and other construction investments could also be affected. Projects will likely be delayed by municipalities and property firms that are heavily indebted.Last year’s election saw a rise in social tension. The once fringe Sweden Democrats became second-largest party amid concerns about gang violence. The minority government of Prime Minister Ulf Kristersson is now supported by the nationalist group.

The Rinkeby-Ursvik bridge will be completed in the coming year. However, a local branch from the Sweden Democrats tried to make it a rallying point for their anti-immigrant message. During last year’s campaign, the party stated that “the bridge from Rinkeby makes criminals more likely to recruit your children into crimes.” “We are serious about the safety of your children. “Tear down the bridge!”

Christina Abdulahad vividly recalls the day her dream of renting an apartment in a quiet area of Stockholm turned into a nightmare. She was a 28-year old graduate of Lund University, where she advised students on how to avoid fraud in renting housing. Before she accepted the apartment, she did her research.

She was shocked to see others arrive to pick up keys from the three-room house as she waited to take them. Abdulahad and nine other people had given their deposits to a woman who had taken the identity of the legal tenant. Abdulahad claimed she was cheated of 43,500 Swedish Kronor ($4,200). This was part of an elaborate fraud that involved multiple bank accounts. Abdulahad estimates that the scam netted a total of approximately half a million Swedish Krona. He also met many other victims.Abdulahad said, “It felt like an awful nightmare,” as she choked up recalling how she had dragged her belongings from the old apartment in Stockholm to get it. It turned my life upside-down.

Karl-Johan Lantz was the officer who led the investigation into Abdulahad’s case. He stated that the police had identified many more incidents with the “same modus operandi”. He also said that the police were ready to question suspects for “fraud and possible money laundering” offenses.

Critics claim that these cases are due to the increasing dysfunction in the real estate market.

Alexander Wilson van Deurs chairman of Jagvillhabostad.nu said, “I don’t see any improvement in the coming years with current policies.” “More people are going to be hurt.”

Sweden has been unable to fulfill its constitutional promise to provide affordable housing for its 10.4 million inhabitants since its founding. However, the rising economy helped to mask flaws in its system until recently.

Recruitment is being affected by a shortage of affordable housing. Last year, the Stockholm Chamber of Commerce reported that three-quarters of all heads of human resource said that the housing situation made it difficult for them to hire new employees.

The tenants association and landlords negotiate rents each year. The system is supported by advocates who claim it creates a Stockholm rental market where teachers, police officers and street cleaners can live in the same place as bankers, government officials, and software developers. But supply has not kept up with demand over the past decades. The average waiting time for rent-controlled apartments is 9.2 years. However, in certain parts of the capital, it can be as high as 20 years.This has created a black market for rental leases. They are very valuable to those who own them but not accessible to many who truly need them. This has opened up the possibility of frauds such as the one that captured Abdulahad.

For those who are already in the business, this can be a very lucrative venture. They can get a nice apartment for a small amount of money, which they can keep for their friends and family. Or, they can sell the lease to make a profit. For migrants and other people without the means or connections to secure housing, they are vulnerable and forced into illegal rental agreements. A woman looking for housing for her daughter and herself paid $40,000 to rent an illegal apartment in Stockholm.

The woman asked not to be identified. She said, “What was she supposed to do?” “Live under a bridge or in a queue 15 years to get an apartment,” she explained.

Only those who have the means to buy on the black market can benefit. Fanny Hansen is a coordinator for a victim support group located in Sodertalje, south of Stockholm. She said that many women are returning to abusive relationships as they cannot find a place to live.

In 2019, the government attempted to crack down on illicit trade by imposing penalties not only on sellers but also on buyers of second-hand leasing. Even though the data is not clear, illicit trade continues to be rampant. According to a 2017 government report, the share of rental contracts resold was between 10% and 50% of public housing stock.

Andreas Carlson (Swedish minister of housing and infrastructure) stated that there is an ongoing inquiry into bringing more order to the rental market. This is an important part the government’s efforts to combat crime including organized crime. “This is an important component of that work.”

One of the most ambitious housing projects in the country is located just north of Stockholm. Barkarbystaden, a property development that will eventually house 30,000 people, has seen construction crews become scarce. In response to the slump, work on 200 apartments was delayed to allow for drip feeding of their release into market. Local officials are putting off granting new building rights due to the economic climate.Jarfalla’s director of community development, Emelie Grin, justifies delaying grants by stating that “things must settle down first.”

This site will be connected to Stockholm’s central station via the Tunnelbana mass transportation system. It is a great example of what Sweden wants. The new urban center, which is surrounded by nature reserves and filled with parks and public space, is intended for families and singles. It has been served since 2018 by electric self-driving buses.

Martin Hofverberg is the chief economist of Sweden’s tenants association. He said that there is a market disconnect. We have a system that prevents us from building houses. Construction falls when the economy slows.”

Local leaders are asking the government to reinstate investment aid in order to revive housebuilding. Kristersson’s coalition ended the initiative that provided subsidies to students and rent apartments.

It is also a political minefield. Voters are not happy with the idea of landlords charging more for more attractive apartments. This could lead to more homes being made available.

Carlson denied any investment support, but stated that the government must “expande ownership” so more people can access the market.

Abdulahad and thousands of other people will find that a dream come true. “I don’t believe I will ever get my money back,” she stated. “I want people to stop. This cannot continue over and over again.”