Response to interpellation 2023/24:470 on the consequences of the housing crisis for the Swedish economy
Translated from Swedish by AI; the translation may contain errors. The Swedish text is the original.
Summary AI, written in advance
1 M argues that the government shares the Konjunkturinstitutet's assessment that housing investments weigh down Swedish GDP 1. M argues that the policy has been restrained to dampen inflation and that structural reforms should provide incentives for increased construction 1. M emphasizes that lowered interest rates and lower inflation are the main medicine to cure the problems 2. M argues that investment support is ineffective and that large investments could raise inflation 3. M believes that the investment support does not save the construction industry and that it is not right to use money in that way when one has a restrained budget to combat inflation 3. M argues that the proposal for state construction loans is irresponsible, risky, and would lead to large expenditures without saving the industry 3. M emphasizes that fighting inflation is active policy and that they are working with structural reforms 3 4. M argues that large loans would fuel inflation and hit the construction industry harder 4. 5 S argues that housing construction has stalled and that the government is not doing enough here and now to prevent construction workers from becoming unemployed 5. 6 S argues that the government is mismanaging the crisis and advocates for a package of measures such as an increased rotavdrag and targeted support 6.
Written by AI in advance and may contain errors. The numbers lead to the speech a statement builds on; check against the text below.
Finansministern Elisabeth Svantesson (M)
Madam Speaker! Mikael Damberg has asked me whether the government makes the same assessment as the National Institute of Economic Research regarding the effect of the falling housing construction on Swedish GDP. Furthermore, Mikael Damberg asks what additional measures I intend to take to prevent the crisis in the construction industry from worsening the Swedish economy.
The Government shares the Konjunkturinstitutet's assessment that housing investments are expected to continue weighing on Swedish GDP. Housing construction normally varies over the business cycle. Higher prices and interest rates in Sweden and in the rest of the world have contributed to increased production and financing costs for construction companies, while housing prices have fallen. The Government's policy has therefore been restrained with a neutral impact on demand in the economy in order to facilitate for the monetary policy to bring down inflation. In the long run, it will contribute to a recovery for housing construction and the Swedish economy. The Government closely follows the developments in the housing market.
The Government intends to carry out structural reforms during the mandate period that shall provide incentives for increased construction, increase the availability of buildable land, shorten the lead times in the construction process and significantly simplify the rules for construction.
The government has already presented several measures. To simplify the rules for construction, the government has, among other things, given a mandate to Boverket regarding relaxations in building requirements for student housing. Boverket is also working on a major review of Boverket's building rules and construction rules. To shorten the lead times in the planning and building process, the government has, among other things, commissioned an investigation on shortened and simplified permit processes according to the Environmental Code and given a mandate to Lantmäteriet to produce a proposal for a roadmap to continue digitizing the community building process. Planning incentives for small houses and conversion measures are introduced to municipalities to increase the supply of housing. The Productivity Commission's mandate includes analyzing the need for reforms also within the housing market. A state credit guarantee for loans for housing construction, managed by Boverket, has already been in place for some time.
Mikael Damberg (S)
Madam Speaker! The background to my interpellation is that housing construction in Sweden has ground to a halt. We see it in a wealth of statistics. The construction industry is one of the sectors that has been hit absolutely hardest by the recession. Over 9,000 people were laid off within the construction industry in 2023, an increase of 154 percent from the previous year. Investments in housing are at the lowest level since 2013, according to KI. As a share of GDP, they are at the lowest level since 2000. During 2024, investments in new construction are estimated by Byggföretagen to fall by 34 percent, after already having fallen by 37 percent during 2023.
This has a major effect. People lose their jobs, and housing projects are stopped. We know that we already have a housing shortage in Sweden as it is, and this means that those young people who dream of their own apartment or need a student apartment to be able to study will find it increasingly difficult. It becomes harder for the women exposed to violence who live in a relationship but do not see how they will manage to move to a new apartment when the housing market becomes even tighter, as well as for the seniors who perhaps want different housing in their autumn years that is adapted to make the finances and everyday life work.
All of this is long-term issues. But acute, here and now, it is people who are losing their jobs, and that has a very large effect on the Swedish economy.
The Minister for Finance now responds that the government shares KI's assessment of the effects on the Swedish economy. KI makes the assessment that housing investments contributed negatively by 1.2 percent to GDP during 2023 and that the figure will be 0.7 percent in 2024. A very large part of the recession that Sweden is currently in is due to the falling housing construction.
Then my question was whether the Minister for Finance envisions further measures to alleviate the effects on the Swedish economy or to prevent the construction workers from losing their jobs – they are also going to have their unemployment insurance reduced with the government's policy moving forward.
The answer is – a bit surprising, I would say – that housing construction normally varies over the economic cycle. Then it is noted that higher prices and interest rates in Sweden and in the rest of the world have contributed to increased production and financing costs, which is true. After that, the Finance Minister goes into a number of arguments about that the government wants to carry out some form of structural reforms during the mandate period with various investigations, assignments, and so on.
None of the part of the answer to me deals with the fact that the government is prepared to do anything now to meet what the construction sector describes as the worst economic situation since the 90s crisis. Nothing is said in the answer about the Finance Minister being prepared to take any measures here and now that can make a difference for students who need to move out of home for their studies or for other people who now need a home. We actually receive no new information on how to boost the economy and ensure that the housing market does not sink the Swedish economy so that Sweden becomes even poorer.
This is something surprising. I cannot remember any government that has sat through such a drastic fall in the housing sector and done nothing. It is usually textbook example 1 A in handling a recession in the housing sector that it does not fall through. The cost for Sweden for those who now become unemployed, when the economy then turns upward again, will be that it becomes more expensive to build housing because those people who today work in the construction sector have left the industry.
This is short-term politics that will not be good for Sweden in the long term.
Finansministern Elisabeth Svantesson (M)
Madam Speaker! It is not always the case that one receives applause before speaking.
First and foremost, I would like to thank Mikael Damberg for a very important question. I share the assessment of and the concern for housing construction and the housing market. Even though in our latest forecast we make the assessment that there will be an upswing later, construction has truly fallen across the board, which is bad in many ways. Of course, it is bad for the housing market, for all young people who need to enter the housing market, and for everyone who needs a home for various reasons, for example, that one needs to leave a dysfunctional relationship and is looking for an apartment. Of course, it is bad when housing construction is very low.
But one must also step back - that is also part of the answer to Mikael Damberg's question - and look at why this has arisen. Every crisis and every situation is unique, but why has this situation arisen? Since 2021, we have had a brutal presence of rising inflation. Even before the war broke out, it rose, and during the war with all that it entails, it has continued to rise. It is about supply disruptions, energy costs and much more that has made and has made inflation very high, while at the same time we have seen that we have been heading into another economic cycle.
Sweden is more interest-rate sensitive than most other countries. Households are interest-rate sensitive, with large mortgages that often have short fixed terms, but the companies are also interest-rate sensitive. Then, of course, something happens in the housing market. Housing developers cannot make their calculations work. Interest rates go up. Financing costs become high. Input materials become more expensive. Furthermore, demand falls because those who want to buy a home or in some way need a home hold back. That is part of what we see now.
We hear from the interpellator that this government is doing nothing. But it is because of this that it has been incredibly important for me to ensure that inflation is dampened, and I am very pleased that it looks to have succeeded. What we have done together has had an effect. And we see that inflation should be able to come down to the target level during this year.
Madam Speaker! When inflation is dampened and we get more interest rate cuts, it means that the situation for this industry and the market will change. This is the main medicine to cure the problems, because inflation is the main villain.
With that said, we naturally see the very tough situation for, for example, many construction workers. First, there were many, perhaps also from other countries, who left the industry. But many Swedish construction workers are unemployed. They need to receive help and support until things turn around again. It is important that Arbetsförmedlingen has the resources to do that.
But we have, as we have said, also made some other interventions. It concerns the rut and rot deductions, especially rot, which is raised temporarily to save some jobs in the industry. I know that it does not save the housing sector. But what saves the housing sector is that inflation goes down, that interest rates come down and that demand increases again.
Mikael Damberg (S)
Madam Speaker! It becomes even more interesting to listen to the Minister for Finance when she describes the situation. It becomes quite obvious that there is a lack of certain crisis awareness regarding how the construction industry is doing. It is not a normal cyclical variation we see in the construction industry right now. We see the worst situation since the 90s crisis. Thousands of construction workers are being laid off and are losing their jobs. The sector in the economy that has the most bankruptcies right now is the construction sector.
The construction sector is indeed affected by inflation and interest rates. It naturally becomes more expensive to build when interest rates are high. But that does not mean the Finance Minister is without responsibility. In that case, the Finance Minister's responsibility is even greater.
When it comes to all the sectors affected by this, one should ask the question: What is the government's plan to ensure that it does not hit the Swedish economy unnecessarily hard? The National Institute of Economic Research now says that GDP is affected by 1.2 percent this year and 0.7 percent next year. That is an enormous amount. There will be large costs for society because nothing is being done to try to counteract the situation.
Now the answer to the construction workers is: Wait for low inflation and lower interest rates, then perhaps it will turn upwards further ahead. And Arbetsförmedlingen is to receive more money.
It is a rather weak argument. It shows that the government has no plan for how to handle a sector that is falling through in this way. This will, in fact, lead to it becoming more expensive to build when construction eventually starts again. Competencies and resources are being knocked out of the sector, which means the shortage will become even greater when it finally turns upwards again. Then industrial establishments and housing construction, much of which is to build the future growth, will be slowed down because this building crisis has been mismanaged.
Since the government in some way acknowledges that they are making largely the same assessment as KI, this must be what they wanted. This was probably what was planned for when the budget was presented and no active measures were proposed to maintain demand for housing construction or renovations in society during a construction crisis.
I cannot draw any other conclusion than that the Finance Minister thinks that this was a reasonable balancing of the policy, that it was a perfectly okay outcome. The overall policy was, in fact, about fighting inflation, and now inflation is falling and it can get better in the long run.
We could have a long discussion about inflation. Sweden has had higher inflation than its neighboring countries. It is good that it is now falling back in Sweden as well compared to other countries. But no one believes in a massive upswing in housing construction in the short term thanks to inflation having fallen back and that interest rates will be lower ahead. It will stabilize, and it will go up slightly. But it is a massive crash in housing construction that it will take time to recover from, if nothing is done here and now.
The Social Democrats proposed that the investment support for rental apartments should not be removed just as we were heading into a recession. It was a wrong choice by the government, in my opinion.
We also proposed a rot deduction reform where one actually increases the rot deduction for energy efficiency measures from the first krona up to 50 percent. It could have led to the construction workers being able to stay at work and work with energy efficiency measures during the crisis.
We have also proposed targeted support for energy efficiency. We have proposed that there should be building incentives for those industrial sites where housing needs to be built. And we have proposed state credits.
We have proposed a complete package of measures. But I am not locked into them. If the government has other proposals for measures to handle the construction crisis: Present them! But now we have once again a situation where the government just leans back and says that they cannot do anything about this. That is not enough.
Finansministern Elisabeth Svantesson (M)
Madam Speaker! Something can be done about this situation, Mikael Damberg. It is to ensure that inflation comes down. That is the most important thing of all.
We often, but not always, have different opinions on politics. Quite often we share them. Why then has the government not implemented the Social Democrats' proposal? Just as Mikael Damberg says, it is an incredible challenge right now, and as I said, it is about making the calculation work.
Let us play with the idea that we would have introduced the investment support again, which the Social Democrats would like to do. We know that it was inefficient. And if we had introduced it, it would be at such enormous levels that other things would have to take a backseat or that inflation would have to go up. It is not about 1 or 2 billion to save the construction sector right now.
The construction industry's situation is not saved by the Social Democrats' subsidies, which we call the investment support. Therefore, we do not believe it would have been the right use of money in this situation—when we have a restrained budget and support households, welfare, defense, and the justice system. It would also not have led to significantly better growth than we have today. If I believed that and if there were evidence for it, we would of course have implemented it. But above all, it would have had an impact on inflation. Furthermore, it would have crowded out other investments.
When it comes to state construction credits, it is important to say that there are state construction credits today. But just that proposal that the Socialdemokraterna have worked out, I think seems quite irresponsible. It is actually about the credit terms being quite favorable and about managing direct lending, not what Boverket is now working on. But to use the taxpayers' money in that way, I believe would lead to very large expenses. It would not save the industry either. It is a very risky proposal, which I think the Socialdemokraterna perhaps have not really thought through.
Number one is, therefore, that inflation is most important. Number two is that we do different things during this tough time, everything from increasing the rotavdrag to that private individuals can, of course, use rotavdrag for energy efficiency.
We also see to it, as said, to start working with all the important structural reforms that should have been completed many years ago. This should not be underestimated. When it now turns, it is, as I mentioned in my answer, important that the structurally important reforms are put in place so that Sweden will get a housing market that functions much better than until now.
Mikael Damberg (S)
Madam Speaker! I have met large parts of the construction industry; no one believes that the measures the government has presented so far affect the economic situation the construction industry has today in any significant way. It is de facto true.
I assert that it was bad policy to abolish the investment support for building rental apartments at reasonable costs when we were heading into a recession. It worsened the situation. Not working in any way with economic policy linked to a construction industry that is now significantly lowering Swedish GDP is not smart economic policy.
One could have worked with the rotavdrag and, for example, made it more advantageous to carry out energy efficiency improvements to get cheaper electricity bills at home. At the same time, the construction workers would have had jobs during the time we have a construction crisis in Sweden. Then they remain in the construction sector. If they leave it, the housing construction will namely become even more expensive in the future. But not even this has the government been able to afford during this construction crisis.
It is said again that construction credits seem to be dangerous. But is it not reasonable that the state is involved and provides credits for housing construction, for investments in such things that build Sweden stronger moving forward? I think it is reasonable.
We have proposed that the investment support should also be targeted at the locations where there are currently industrial establishments. They are enormous, and thousands of new homes are needed so that people can also move to the new jobs, pay tax in the municipalities, and become part of the revenues to society. Nor does the government have an answer here. Would it not be good if these cities with industrial establishments, in a recession, could build homes for those who are to take the jobs in the green industry?
The government is passive and hopes that everything will be resolved moving forward. Unfortunately, it is the construction workers who are paying the price for the government's passive policy in this area.
Finansministern Elisabeth Svantesson (M)
Madam Speaker! I thank the member for the discussion.
We share the problem, but we obviously do not share the perception of what should be done. Being active in combating inflation is precisely being active. Supporting households and welfare, ensuring that the root is changed and ensuring that there is planning stimulus for the construction of small housing is active politics.
No matter how much the member and other members here think I nag about inflation, there is a simple reason, namely that inflation is now falling. The last round is not won, but we see clearly that it is falling. It is the very basis for the economy to turn around and pick up speed again. It is so that more construction workers can get into work faster. With large subsidies during the time when the economy drove up inflation, it would have gone significantly worse, and it would have become a more protracted recession.
I still think that one should be a bit humble when you have coalition partners in the Riksdag who actually do not quite want what the Social Democrats want. Both Vänsterpartiet and Miljöpartiet want to borrow 174 and 217 billion respectively over the coming years. That would have significantly fueled inflation, and it would have led to increased interest rates. Calculations show somewhere between 1.5 and 1.8 percent. It would have hit the construction industry to an even greater extent and pulled Sweden into an even deeper recession, and that is not taking responsibility. We take responsibility, we fight inflation, and we can see that it is going down. We support different industries, households, and welfare during the time.
Madam Speaker! I see the economic winter beginning to come to an end, but it is still a tough year. We will do everything we can to support industries and people who are affected by the recession.
Source: The Swedish Parliament. The speeches come from the open data of the Riksdag, translated into English by AI, which may contain errors.