Half-Year Report 2021


The Swedish economy fared well in the face of a winter that proved difficult due to the pandemic. After the coronavirus spread rapidly in the first quarter of 2021, putting significant pressure on the healthcare system and resulting in the imposition of more stringent measures affecting public life and the economy alike, the third wave peaked in April, with infection rates only starting to decline rapidly in June. Nevertheless, a slight quarter-on-quarter increase in seasonally adjusted GDP of 0.8% was achieved in first quarter of 2021. The lion’s share of the GDP growth came from higher inventory investment, although exports also picked up fairly swiftly, rising by 1.3%. As imports increased by 1.4%, the impact of net exports on GDP growth as a whole was limited. According to Statistics Sweden (SCB), private household consumption increased at a relatively normal rate of 0.5%, while government consumption picked up 0.4%.

The SCB reported that the unemployment rate in May stood at 9.1%, as against 9.3% at the beginning of the year. Because the change in the methodology used in the Swedish labor force survey effective from January 1, 2021, due to the new Integrated European Social Statistics Framework Regulation, has led to breaks in the time series, it does not make sense to draw comparisons with the previous year. Inflation, as measured by the increase in the consumer price index with a fixed interest rate (CPIF), exceeded the 2% mark in both April and May of this year, primarily due to higher raw material and energy prices, which were also fueled by supply shortages.

After getting off to a slow start, the vaccination program is now well under way. Restrictions and recommendations are expected to be gradually eased starting in the summer – provided that the spread of infection remains on a downward trajectory. Swedish society is on the cusp of a marked recovery, with household and public sector consumption expenditure set to show a particular increase this year. Households are benefiting from tax relief but also have the potential to spend their increased savings. The outlook concerning the coronavirus pandemic is also improving among Sweden’s main trading partners, helping to fuel a rapid increase in the demand for Swedish goods since the second quarter of the year. Investment is also increasing, not least in the industry, while public-sector investment is also improving at a good pace. Although there will be something of a damper on the industrial sector in the foreseeable future due to a shortage of components (e. g., semiconductors) and delayed container shipments, particularly from Asia, the sector should see things pick up again later on in the year. Residential construction is expected to remain at an all-time high. All in all, the foundation is in place to allow the Swedish economy to continue with its rapid recovery this year. The rosier outlook is also reflected in the economic indicator, which has risen to the highest level seen since measurements began back in 1996. Overall, the National Institute of Economic Research (NIER) expects GDP to increase by 4.4% in 2021 and by 3.5% in 2022.

Unemployment is likely to drop gradually as economic activity bounces back and labor market and training measures make it easier to match people with jobs. It is not likely to return to pre-pandemic levels until late 2022, mainly because the pandemic has led to higher long-term unemployment, which makes job placement more difficult. The NIER expects to see an unemployment rate of 8.7% for 2021 and 7.6% for 2022. The government has announced that some of its assistance measures, such as short-time working and reorientation support, will be extended until the summer to counteract the economic impact of the protracted pandemic. The government has announced further measures since it released its draft budget for 2021, most of which relate to support for businesses. The Swedish minority government is currently on shaky ground: After resigning following a lost vote of no confidence, Swedish Prime Minister Löfven was re-elected by the very narrowest of margins at the beginning of July after withdrawing his plan to approve controlled rents for new buildings. The effects on the country’s budget discussions remain to be seen.

Inflation is likely to remain below the 2% target thanks to moderate wage agreements and the ongoing slack in certain parts of the economy. The appreciation of the Swedish krona would drag inflation down further. Monetary policy remains very expansionary with interest rates sitting at zero, while the Riksbank will be continuing with its asset purchases this year. The repo rate is expected to remain at 0.0% throughout the forecast horizon. The same forecast risks that apply to Germany, relating to the course of the pandemic and supply bottlenecks, also apply to Sweden.

In an environment characterized by the coronavirus pandemic, residential real estate, along with community service properties, are still seen as the real estate market winners and a safe haven for capital, according to experts at the real estate consultancy firm Svefa. Residential real estate has been a very attractive investment segment in recent years, with lower return requirements and rising prices throughout Sweden. Positive value development has been seen in the country’s large cities in particular, as well as in university and college towns. Overall, market conditions for the rental housing segment in Sweden’s growth markets remain positive.

The country has witnessed marked population growth in recent years and the population is set to increase by 900,000 to more than 11 million in the period between 2020 and 2040, according to a current estimate by the Swedish statistics office SCB. In 2020, however, Sweden reported the lowest level of population growth in 15 years as a result of the pandemic. As new construction was unable to keep up with population growth for some time, much of the country is facing a housing shortage, primarily in its urban areas. Even though the number of municipalities with a balanced housing market is increasing, 207 out of 290 municipalities reported a shortage of homes in the residential property market survey for 2021 conducted by Boverket, the Swedish National Board of Housing, Building and Planning. The greater Stockholm, Gothenburg and Malmö regions accounted for around 76% of the total deficit in 2020. In particular, sections of the population that are new to the housing market, such as young people, students and new arrivals in Sweden (nyanlända), as well as people with disabilities and older people who want, or indeed need, to move, are finding it difficult to meet their housing needs. Meanwhile, in many municipalities, residential construction activity is hampered by high construction costs. Furthermore, strict lending requirements or difficulties faced by private individuals in being granted loans, for example, limit new construction.

According to data supplied by SCB, rents rose by an average of 1.9% in 2020, as in the previous year. Rents will continue to increase in 2021 based on the results of the rent negotiations for 2021 published by “Hem & Hyra,” the member magazine published by the Swedish tenants’ association (“Hyresgästföreningen”). According to calculations from April 2021, this year’s rent increase will average 1.23%, according to Hem & Hyra. According to Savills, major trends such as ongoing urbanization, smaller household sizes and a strong rise in prices for condominiums and houses have been driving the demand for rental apartments. This trend may intensify further in times of uncertainty. Prices for residential property ownership increased significantly during the pandemic. According to Swedbank, this is also because households are reassessing their housing needs, meaning that the demand for single-family houses and larger apartments outstrips the supply. The Valueguard HOX price index, which reflects the price development of typical condominiums and single-family homes, was up by 17.9% year-on-year in May 2021. The increase is being driven in particular by the development of prices for single-family homes. As the COVID-19 situation stabilizes and household consumption patterns return to normal, experts at Swedbank estimate that residential property prices will rise by around 5% a year in 2021 and 2022. Catella reports that yield compression on residential rental properties has been powerful since the spring of 2020.

According to Boverket, the strong demand for housing is laying the foundation for a significant increase in residential construction activity. Boverket estimates that residential construction activity will grow by 8% in 2021, with work starting on the construction of 61,700 apartments (2020: 57,000, including increases from refurbishment measures). A further 4% increase is expected for 2022. The number of completed apartments declined in 2020 (54,100, including increases from refurbishment measures) and is expected to remain on par with this level in 2021, according to Boverket, before increasing again in 2022 (57,500). Increased material prices could slow down those developments. As housing construction has gradually increased and population growth has slowed, the housing deficit recently narrowed somewhat. The deficit had been growing steadily over a prolonged period starting in 2006, when the population started to grow at a faster rate than housing. According to Boverket’s estimate for this year, around 59,000 new apartments will need to be built every year between now and 2029 to do justice to the expected population growth and reduce the pent-up housing deficit. However, according to Svefa the rapid new construction rate for rental apartments could translate into lower demand in the long term, especially in less attractive markets.

According to the independent consultancy company Pangea Property Partners, properties worth € 14.3 billion were traded on the Swedish transaction market in the first half of 2021, twice as much as in the same period of the previous year. In terms of transaction volume, residential properties were the second-largest asset class after office properties with a share of 22%. Residential real estate ranks among the most popular low-risk segments in the current market environment, both in the Nordic region and the rest of Europe.