Sweden faces housing crunch, fears of bubble

It is one of Swedish centre-left Prime Minister Stefan Lofven's signature policies - building 700,000 homes in a decade to ease a shortage of dwellings that has business worried about attracting employees and policy makers fearing a property bubble. But Lofven's plans may be pie in the sky, industry officials and analysts say. Decades of weak construction levels combined with a fast growing population has made new homes scarce. Over 80 percent of Sweden's municipalities are suffering shortages, a 30 percent increase since last year, the National Board of Housing said.

The shortage could be the Achilles heel of one of Europe's fastest growing economies. It has contributed to house prices clocking up double digit annual growth, sparked fears of losing international business competitiveness and complicated central bank policy in an era of record low rates. For Lofven's minority government, which faces an election in 2018, a failure to seriously dent the shortage may become a political handicap, given that housing construction was one of his main campaign promises. But strict regulations combined with lack of capacity in the construction sector mean Lofven's plans will likely fall short, according to industry officials and analysts, while political deadlock may mean reforms to encourage building will be on hold.

"Either they don't understand how the construction market works or they don't believe in their own target," said Lennart Weiss, commercial director at construction company Veidekke, adding the shortfall may be as much as 350,000 homes. The shortage has already seen the founders of music streaming service Spotify - which employs around 1,000 people in Stockholm - send an open letter to politicians in April, telling them to solve the issue or risk losing thousands of jobs. Stockholm house prices soared 12 percent in the last year and there is a waiting time of around 10 years for rental homes.