Skip to main content
Complete Olympic Games coverage at your fingertips
Your inside track on the Olympic Games
Enjoy unlimited digital access
$1.99
per week for 24 weeks
Complete Olympic Games coverage at your fingertips
Your inside track onthe Olympics Games
$1.99
per week
for 24 weeks
// //

If Sweden’s government gets its way, Bromma airport on the western edge of Stockholm will shut down and be used to build around 30,000 new homes, helping to ease a housing shortage that has sent prices in the capital soaring.

Sweden is not alone in seeking innovative ways to boost the supply of housing and, ultimately, reduce a build-up of mortgage debt that threatens the wider economy.

In many big European cities, prices have been rising for decades, pushed higher by a cocktail of low interest rates, land shortages and construction that cannot keep pace with demand.

Story continues below advertisement

At Berlin’s former Tegel airport, closed in November last year, the city’s authorities are planning to build more than 5,000 apartments. Politicians are also looking at whether they can build social housing at the former Tempelhof airport in the heart of the city.

“In the medium term, we need some 200,000 additional apartments,” Berlin Housing Senator Sebastian Scheel said, adding that half of those apartments should be built by the public sector and subsidized under social-housing rules.

Despite the deep effects of the pandemic on Europe’s economies, prompting comparisons with the 2008 financial crisis, property price rises have picked up speed over the past year.

Demand from stay-at-home workers desperate for space for an office has contributed to the price surge, while unprecedented fiscal and monetary stimulus aimed at keeping economies afloat have poured more fuel on the fire.

British Finance Minister Rishi Sunak’s March budget extended a temporary cut to property purchase tax and announced a new plan to help first-time buyers struggling to raise a deposit. British house prices recorded their biggest monthly rise in more than 17 years last month.

“What we were expecting to see was much the same as 2008 – that prices would drop,” said Kate Everett-Allan, Head of International Residential Research at property consultancy Knight Frank.

“We had no idea the extent to which governments were going to support the market.”

Story continues below advertisement

In Berlin, prices are up 11 per cent over the past year, the Global Property Guide, a residential property research site, showed.

And rising rents are a big problem for the city, where only about 17.4 per cent of the population own their house or apartment. In Germany as a whole, roughly 50 per cent of the population are renting and are exposed to rising rents eating up more disposable income.

With Germany’s federal election looming in September, politicians are scrambling to show voters they can solve the crisis, promising a mix of new social housing, more building land and tighter federal rules against excessive rent increases. But a quick fix is unlikely.

Stockholm, Luxembourg, Moscow and Bratislava have all seen double digit rises over the past 12 months, though in a small number of cities, such as Madrid, prices have fallen.

Swiss bank UBS highlights Munich, Frankfurt, Amsterdam, Paris and Zurich as cities at risk of a property bubble. Four of the 12 European cities in UBS’s Global Real Estate Bubble Index are overvalued – including Stockholm – and only in Warsaw, Milan and Madrid were property prices reasonable.

“In the short term, the only solution is [for people] ... to borrow more and more and more, and that is a worry not only for individuals but for society as a whole,” Swedish central bank Governor Stefan Ingves said.

Story continues below advertisement

This week, Finland’s central bank warned about levels of household debt, echoing concerns at Sweden’s Riksbank and many other European authorities over the threat to the financial system.

Household debt levels in the Nordics are amongst the highest in the world in relation to disposable income, based on OECD data.

NOT IN MY BACKYARD

Finding new places to build to increase supply is not easy.

At Bromma airport, traffic levels have collapsed during the pandemic, but Arlanda – Stockholm’s main airport – may not have to capacity to cope if flights are transferred there.

Sweden’s Moderate Party, the biggest opposition party, says it will rip up any deal to close Bromma if it wins an election next year, unless an expansion of Arlanda goes ahead.

In Berlin, a referendum in 2014 rejected building on Tempelhof and a new referendum would be needed to reverse that decision.

Story continues below advertisement

In Britain, the government announced plans in April to convert empty offices into homes as part of a recovery plan from the COVID-19, with a goal of creating 1,500 new homes by 2030.

Earlier this year, it introduced new laws to make it easier to convert disused shops into homes.

Even if these plans go ahead, however, they will barely dent demand.

Sweden’s Housing Board, for example, reckons the capital would need a development the size of Bromma airport each year this decade to make up for the housing shortfall. Analysts say more comprehensive structural changes are needed to bring the housing market in to balance.

There is widespread agreement that Sweden’s mortgage tax relief should be gradually reduced and the highly regulated rental market freed up. Building and planning rules should be eased, among other things.

But many politicians see meddling with housing policy as a sure vote loser and few are brave enough to upset the status quo.

Story continues below advertisement

Earlier this week, Swedish Prime Minister Stefan Lofven rejected reintroducing a property tax – scrapped in 2008 by the then right-of-centre government and seen as key element in getting soaring house prices under control. He faces a tight election next year.

Average mortgage rates in Sweden, for example, are about 1.3 per cent currently compared with around 6 per cent in 2000 and 14.5 per cent in 1985, for a floating rate loan.

In the short term, many economists are looking to central banks to play the party pooper, tightening policy to make it more expensive to borrow.

In New Zealand, for example, house prices have been added to the remit of the central bank because of concerns about the country’s property market.

The European Central Bank has acknowledged localized bubbles, but it argues that there is no systemic overvaluation in housing.

It has also called on local regulators to act on bubbles as the euro zone’s one-size-fits-all monetary policy, designed to control inflation, is too blunt a tool to deal with local issues.

Story continues below advertisement

With the pandemic still raging, rate-setters argue a cure for Europe’s housing ills based on higher rates would be worse than the disease.

“We would, simply put, probably kill the recovery that we are seeing in the Swedish economy, before it has really got going,” Swedish central bank Deputy Governor Anna Breman said in April.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies