Annual Report 2019


After several years of upswing, economic growth is also slowing in Sweden. The latest forecast released by the National Institute of Economic Research (NIER) put GDP growth in 2019 at an estimated 1.1%. Growth slowed down in particular due to the waning demand from abroad, which translated into weak development in corporate investment. In 2020, GDP development is likely to remain weak due to sluggish export growth and an expected rise in the unemployment rate. However, both the monetary policy, which remains accommodative, and the slightly expansive fiscal policy are likely to provide a boost to growth. Therefore, the NIER predicts GDP growth of 1.0% in 2020, with a return to more substantial growth of 1.5% on the cards for 2021.

The relatively weak demand growth means that there will be little need for companies to expand their workforces, particularly in the manufacturing sector. Negative net lending in the municipal sector will also put pressure on employment in the public sector, which is only set to increase at a slow rate in the foreseeable future. However, since the working-age population will continue to grow over the next few years, unemployment is likely to increase from 6.8% in 2019 to 7.2% in 2020 and 7.4% in 2021. Both consumer and business confidence indicators are below normal levels with regard to the economic trend. This is reflected, first of all, in slower growth in private consumption in 2019 than in previous years at 1.0% and second, in economic sentiment that is languishing at a low level last seen during the euro crisis. However, as private households will benefit from tax cuts and slightly lower inflation, the NIER predicts that private consumption will increase by 1.9% in 2020 and 1.7% in 2021. While investments in the manufacturing sector have dropped further, investments in the service sector have increased. Housing investment also showed slightly positive development after being on a downward trajectory for more than a year. Nevertheless, investments have failed to make any positive contribution to GDP growth, a natural consequence in times of economic downturn. The state, on the other hand, is continuing to up its investments, particularly in education and infrastructure.

The ongoing weakness of the Swedish krona provided a further boost to exports, which grew by an estimated 4.6% in 2019; imports rose by 2.1% and the foreign trade balance was +1.2%. As far as 2020 is concerned, the NIER expects to see a foreign trade balance that is more or less in equilibrium due to global economic tensions, with an expected slight increase to 0.6% in favor of exports again in 2021.

At 1.7%, the inflation rate (CPIF) remained below the 2% target set by the Swedish Riksbank in 2019 and is actually expected to dip slightly again to 1.6% in 2020 and 1.5% in 2021 based on calculations performed by the NIER. Nevertheless, the Riksbank opted to buck the international trend in December 2019 by tightening its monetary policy and lifting interest rates from -0.25% to 0.00%. This marks the first time in five years that the key interest rate has left negative territory; it is expected to remain at zero over the coming years, too.

The Swedish housing market is under considerable pressure, as reported by the Swedish Association of Public Housing Companies, Sveriges Allmännytta. The population has seen strong growth in recent years and is expected to continue expanding. In the meantime, new construction has not been able to keep up with this population growth. Much of the country is facing a housing shortage, primarily in its urban areas. According to the housing market survey from 2019 by Boverket, the Swedish National Board of Housing, Building and Planning, 240 out of 290 municipalities are reporting a shortage of homes. The supply of rental apartments in particular needs to be expanded; there is a particular shortage of apartments for low-income households as well as housing for people who have a weak position on the housing market for other reasons. Residential construction is limited in many municipalities due to high construction costs, but also by the difficulties faced by private individuals in being granted loans.

According to data supplied by Statistics Sweden, rents in Sweden rose by an average of 1.9% in 2019, the highest increase seen since 2013. Based on the initial results of the rent negotiations for 2020 published by “Hem & Hyra,” the member magazine published by the Swedish tenants’ association (“Hyresgästföreningen”), rents are also expected to continue to rise. According to Swedbank, the market for residential property ownership is once again experiencing an upward trend and prices are rising again. In line with this trend, the Valueguard HOX price index, which reflects the price development of typical condominiums and single-family homes, was up by 4.5% year-over-year in December 2019. According to Boverket, the prices of residential property ownership are once again nearing the level seen prior to the sudden price drop in the fourth quarter of 2017. According to the European Commission, the development witnessed at that time was driven mainly by weakness in the tenant-owned apartment market and is likely to have been caused by, among other factors, stricter mortgage rules as well as by an increase in the supply of new homes. These are often being built in a market segment that is too expensive, according to property service provider Newsec. Swedbank predicts that house prices could increase by 5% a year in 2020 and 2021.

The NIER reports that, after the cooling of house prices, housing investment was down in 2018 after a prolonged phase of rapid growth. The number of housing starts has declined considerably, from 68,500 apartments in 2017 to 56,200 apartments in 2018, according to Boverket. The situation has stabilized since then, with construction work starting on an estimated 51,000 apartments in 2019, with a potential figure of 50,000 apartments for 2020. According to figures released by Boverket, the drop is mainly concentrated in the tenant-owned apartment segment, whereas the drop in the construction of rented apartments and single-family homes as against 2017 is less pronounced. This means, however, that construction activity is still falling short of the level that is currently required. In the main scenario underlying its current forecast, Boverket calculates that 64,000 apartments will have to be built every year in the period leading up to 2027.

According to Jones Lang LaSalle (JLL), the marked imbalance between supply and demand in all living categories, combined with a growing and aging population, offers investors a positive environment for stable, inflation-linked returns and good potential for asset value appreciation. Both traditional multifamily properties and elderly care facilities rank among the asset groups attracting the greatest investor demand. The keen investor interest is also reflected in the transaction volume. According to Savills, properties worth SEK 219 billion were traded in 2019. With a total investment volume of almost SEK 80 billion residential properties were the preferred asset class. The considerable volume is partly attributable to the takeover of the housing company Hembla by Vonovia. There is keen investor interest in both new builds and old stock. The beneficial potential for rent improvement has created considerable investor demand for properties built during the country’s “Million Program” public housing program. The Million Program was a construction program launched by the Swedish government that aimed to build around one million new apartments in the ten-year period between 1965 and 1975.