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Sweden responds to worst housing slump since 2008 with more supply

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Swedish housing prices have slumped almost 10 per cent from their peak in the summer, and international investors are starting to wonder whether the market can avoid a hard landing. "Looking in the long term, the housing shortage is still very large, so there's still a need to increase construction," says housing minister Peter Eriksson.

Stockholm

SWEDEN'S government wants to add supply to a housing market that's just gone through its biggest price slump in a decade.

The Social Democrat-led ruling coalition is intending to make property construction a key plank of its campaign ahead of the September election, according to Peter Eriksson, the country's housing minister.

"Looking in the long term, the housing shortage is still very large, so there's still a need to increase construction," Mr Eriksson said in an interview on Friday in Stockholm.

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Swedish housing prices have slumped almost 10 per cent from their peak in the summer, and international investors are starting to wonder whether the market can avoid a hard landing. Since late last year, the krona has been sold off amid concerns that a full-blown housing crisis was brewing.

The correction followed tougher mortgage rules and a decline in household sentiment, which coincided with a sudden surge in construction.

Housing starts reached about 65,000 last year, more than three times the annual average since the mid-1990s, according to the Swedish central bank.

But there have been some signs the housing market might be stabilising, with population growth (in part fuelled by immigration) ensuring demand remains strong. The National Board of Housing Building and Planning says Sweden needs to build 600,000 homes by 2025 to compensate for low construction in previous years.

"We have one of Europe's fastest growing populations," Mr Eriksson said. "It might take some time but we think that integration will go faster and that we will see a growing demand for housing." The minister says much of the drama in Sweden's housing market has played out in Stockholm, while the rest of the country is less affected. The Swedish Financial Supervisory Authority has also played down concerns.

Sweden's government has supported the regulator's steps to tighten mortgage rules. But Mr Eriksson says he's looking at ways to possibly soften the impact on first-time buyers of some of those rules. "We are looking at what we can do about investment subsidies," he said. "It's highly probable that we will need to put more resources into this sort of measures." This will also mean cheaper rental housing, he said. "This is going to be an important electoral question." BLOOMBERG

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