COMMISSION STAFF WORKING DOCUMENT In-depth review for Sweden in accordance with Article 5 of Regulation (EU) No. 2011/1176 on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK 2022 European Semester – Spring Package
Date: 2022-05-23
Institutions: European Commission, Secretariat-General
Subjects: European Semester, Sweden, economic policy, economic recovery, energy policy, housing, indebtedness, macroeconomics, prices, property market, property tax

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 23.5.2022  SWD(2022) 639 final  COMMISSION STAFF WORKING DOCUMENT In-depth review for Sweden           in accordance with Article 5 of Regulation (EU) No. 2011/1176 on the prevention and correction of macroeconomic imbalances       Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK  2022 European Semester – Spring Package {COM(2022) 600 final} - {SWD(2022) 628 final} - {SWD(2022) 629 final} - {SWD(2022) 630 final} - {SWD(2022) 631 final} - {SWD(2022) 632 final} - {SWD(2022) 633 final} - {SWD(2022) 634 final} - {SWD(2022) 635 final} - {SWD(2022) 636 final} - {SWD(2022) 637 final} - {SWD(2022) 638 final}  
 
 
On the basis of this in-depth review for Sweden undertaken under Regulation (EU) No 
1176/2011  on  the  prevention  and  correction  of  macroeconomic  imbalances,  the 
Commission has considered in its Communication “European Semester – 2022 Spring 
Package” (COM(2022)600 final) that: 

Sweden  is experiencing imbalances. Vulnerabilities relate to high and rising  house prices 
and  high  household  indebtedness.  In  2021,  house  prices  moved  further  away  from 
fundamental values with supportive financial conditions continuing to fuel housing demand. 
High  household  debt  exposes  Sweden  to  the  risk  of  adverse  shocks  and  a  disorderly 
correction  of  housing  prices,  with  potential  harmful  implications  for  the  real  economy  and 
the banking sector. Private  debt has risen further, a  large  share of  which is concentrated in 
real estate, both commercial and housing, and most of household mortgage debt is at variable 
interest  rates.  Policy  measures  have  not  sufficiently  addressed  vulnerabilities  relating  to 
housing  debt  and  potential  house  price  overvaluations.  Tax  incentives  for  debt-financed 
housing  remain,  along  with  shortages  in  supply  and  identified  shortcomings  in  the 
functioning of the rental  market. Measures in the RRP only address the vulnerabilities in  a 
partially satisfactory manner. 

1 

 
 
 
 
 
 
 
 
 
CONTENTS 

1.  Introduction 

2.  Assessment of macroeconomic imbalances 

3.  Thematic chapter: Housing market and property taxation 

LIST OF TABLES 

Table b.1.1:   Selected exposures 

Table 2.1: 

Selected economic and financial indicators (Part 1), Sweden 

Table 2.2: 

Selected economic and financial indicators (Part 2), Sweden 

Table 3.1: 

Selected housing indicators 

LIST OF GRAPHS 

Graph 2.1: 

Value of land and dwellings held by household (% of total assets) and their ratio 

Graph b.1.1:  Sectoral distribution of energy use and of energy imported from Russia 

Graph b.1.2:  Sweden goods and service trade balance – fossil trade contribution 

Graph 3.1: 

Recurrent and other property taxes (% of GDP,2020) 

Graph 3.2: 

Household debt (SEK mln) and tax expenditure (%of GDP, r-axis) 

Graph 3.3: 

Sweden national average: Actual vs. 'attainable' house price change 

Graph 3.4: 

Foregone municipal revenues from property fees due to the cap and lags in assessed 

value 

3 

4 

12 

9 

10 

11 

16 

5 

8 

9 

14 

14 

15 

15 

2 

 
 
 
 
 
 
1.  INTRODUCTION 

In  2021,  over  the  previous  annual  cycle  of  surveillance  under  the  Macroeconomic  Imbalances 
Procedure  (MIP),  the  Commission  identified  “macroeconomic  imbalances”  in  Sweden. (1)  These 
imbalances were related to risks of overvalued house prices coupled with high and rising household debt. 
The 2022 Alert Mechanism Report concluded that a new in-depth review (IDR) should be undertaken for 
Sweden with a view to assess the persistence or unwinding of imbalances. (2) 

The  Swedish  economy  surpassed  its  pre-pandemic  level  in  2021,  and  more  moderate  growth  is 
forecast in coming years. (3) The economy contracted by 2.9% in 2020, less than in many other Member 
States.  It  started  to  bounce  back  in  mid-2020  when  international  supply  bottlenecks  eased  and  private 
consumption  and  exports  picked  up  again.  Decisive  government  measures  supported  the  recovery  and 
protected businesses, employment and stimulated consumption. Real GDP growth reached 4.8% in 2021 
and by  mid-2021, Sweden’s real GDP had surpassed its pre-pandemic level. GDP growth is  forecast at 
2.3% in 2022 and 1.4% in 2023. The main drivers of GDP growth over the forecast horizon are private- 
consumption and net exports. In the wake of the Russian invasion in Ukraine the Swedish krona proved to 
be relatively exposed to changes in geopolitical uncertainty. Broad-based price increases across a range of 
goods  and  services  are  driving  inflation.  The  strength  of  the  recovery  from  the  pandemic,  possible 
structural lasting implications of the COVID-19 crisis and the geopolitical tensions associated to the war 
in Ukraine imply significant uncertainty for economic prospects. 

This in-depth review presents the main findings of the assessment of imbalances. The assessment is 
backed by a thematic section on the housing market. Spillovers and systemic cross-border implications of 
imbalances  are  also  taken  into  account.  In  addition,  assessments  of  structural  issues  made  in  previous 
IDRs and in the context of fiscal assessments are also considered if relevant. The MIP assessment matrix 
is published in the 2022 Country Report for Sweden. (4) 

(1)  European Commission (2021), European Semester Spring Package 2021, COM(2021) 500 final. 
(2)  European Commission (2021), Alert Mechanism Report 2022, COM (2021) 741 final. 
(3)  Forecast data are from European Commission (2022), European Economic Forecast: Spring 2022, Institutional Paper 172. 
(4)  European Commission (2022), Country Report Sweden 2022, SWD(2022)625 final. 

3 

 
 
 
                                                           
2.  ASSESSMENT OF MACROECONOMIC IMBALANCES 

Assessment of gravity, evolution and prospects of macroeconomic imbalances 

Private  debt  rose  to  218%  of  GDP  in  2021.  After  strong  increases  in  the  years  before  the  global 
economic and financial crisis, private debt rose at a moderate pace between 2010 and 2018. Since, private 
debt growth accelerated and the private  debt to GDP ratio reached 218% in 2021, from  213% in 2020. 
The  debt  of  non-financial  corporations  was  relatively  stable  from  2010  until  2019  with  an  average  of 
110% of GDP. By contrast, household debt, grew continuously over the period – despite the volatility in 
financial  markets  and  the  wider  economy.  Four-fifths  of  lending  to  households  by  monetary  financial 
institutions  is  collateralised  by  housing,  and  represents  mortgage  debt.  The  increase  was  driven  by  the 
combination of low interest rates, the debt bias in taxation of owner-occupied housing and higher house 
prices  fostered  in  part  by  supply  bottlenecks  and  a  strongly  regulated  rental  market,  which  for  many 
hampers renting as a viable alternative to buying a house.  

House prices accelerated in 2021 from a trend that already outpaced growth of household income. 
Prices almost quadrupled between 1996 and 2021, whereas disposal income less than doubled over that 
period. Nominal house prices grew by 10.2% year-on-year in 2021, while in real terms they increased by 
8.1%  year-on-year.  These  are  high  growth  rates  by  historical  standards  and  the  highest  since  2015.  
Several factors seem to be behind the recent acceleration in house price growth: policy stimulus including 
(expectations  of)  low  to  negative  real  interest  rates,  a  temporary  relaxation  in  prudential  regulation, 
declining  capital  gains  taxes  on  houses  and  the  spreading  of  remote  working.  Although  housing 
investment has recovered from the slump during and following the global financial and economic crisis, 
and approved construction permits doubled between 2015 and 2021 compared to 2009-2014, this was not 
sufficient to offset increasing demand. New housing supply is still falling short of the current needs. (5) 

Swedish property prices appear to be significantly above their fundamental values. Price-to-income 
and price-to-rent ratios were about 40-62 % above their long-term average as of 2021. The actual price-
to-rent ratio has an upward bias because of rent regulation in Sweden. A model-based estimate suggests 
prices are slightly above levels suggested by fundamentals, but this for a large part reflects exceptionally 
low interest rates. Overall, the estimated valuation gaps for Sweden are among the highest in the EU. The 
ESRB  has  recently  confirmed  the  high  valuation  of  Swedish  real  estate (6)  and  put  Swedish  housing 
prices at 51% above their estimated equilibrium level in their model estimation (2021 Q2), the highest in 
the European Economic Area. House prices out of line with fundamentals suggest a risk of a disorderly 
correction. The latter could be triggered by, for instance, an external shock, or a rapid rise in the after-tax 
mortgage  interest  rates.  Because  Swedish  homeowners  typically  fix  their  interest  rates  for  short  time 
periods, interest rate increases pass through relatively quickly to their debt service costs. 

The value of land has risen even faster than property prices. Graph 2.1 shows the share of dwellings 
and of land underlying dwellings as a percentage of total assets held by households. The line in the graph 
reflects  the  ratio  between  the  two:  the  land-to-dwelling  asset  value  ratio.  Following  a  decline  between 
1980  and  2008,  the  ratio  has  quickly  returned  to  above  the  level  of  the  early  1980s  and  is  now  at  the 
highest recorded level. This suggests, first, that buildable land is in scarce supply but, second, might also 
indicate  that  offering  new  buildable  land  can  bring  down  the  costs  of  homeownership.  It  is  difficult  to 
assess the risks to overvaluation but there are cases in which high value of land compared to the dwelling 
reflects overvaluation and both tax and other institutional inefficiencies (see, e.g. Noguchi 1994 (7)). 

(5)  https://www.boverket.se/sv/om-boverket/publicerat-av-boverket/nyheter/bostadsbyggandet-okar-med-15-procent-och-66-000-

bostader-borjar-byggas-under-aret/ 

(6)  ESRB (2022), “Vulnerabilities in the residential real estate sectors of the EEA countries”, February 2022 
(7)  Noguchi,  Y.  (1994),  “Land  prices  and  house  prices  in  Japan”,  in  Housing  Markets  in  the  United  States  and  Japan,  NBER 

edited by Yukio Noguchi and James Poterba, Chicago University Press, January 1994 

4 

 
                                                           
Graph 2.1:  Value of land and dwellings held by household (% of total assets) and their ratio 

2. Assessment of macroeconomic imbalances 

Source: SCB 

The rental market does not function well and is hardly an alternative to the purchase market. The 
vacancy  rate  for  rental  dwellings  is  among  the  lowest  in  the  EU  as  well  as  compared  to  neighbouring 
countries (0.6% in 2019 vs 5.2% in Denmark in 2018 and 10.2% in Finland in 2015  – according to the 
latest  available  data (8).  The  rental  market  is  characterised  by  long  waiting  queues  and  below  market 
rents. Those depending more on public housing, i.e. those with lower incomes, face an increasingly tight 
rental  market,  with  the  share  of  public  housing  for  rent  out  of  the  total  housing  stock  having  declined 
from 23% in 2001 to 18% in 2018. 

The  short-fall  of  housing  supply  is  expected  to  decrease  gradually.  Sweden’s  National  Board  of 
Housing, Building and Planning (9) estimates that in 2021 some 66,000 new dwellings have been added to 
the housing stock, mostly in multi-dwellings buildings. For 2022, it expects 66 500 dwellings to be added 
to  the  housing  stock  and,  again,  mostly  in  multi-dwelling  buildings.  If  realized,  this  would  reduce  the 
short-fall  in  supply.  The  National  Board  estimated  the  accumulated  deficit  at  just  under  200 000 
dwellings in 2020. Planning and building regulations in combination with an apparent reluctance to offer 
buildable land in some municipalities, weak competition in the construction sector and the lack of rental 
market reforms still stiffen the reaction of supply to increased demand.  

House price growth is expected to slow. The strong labour market and increasing household disposable 
income  are  expected  to  support  house  prices.  However,  this  should  be  counteracted  by  the  downward 
pressure  that  is  expected  to  come  from  the  already  high  valuations,  construction  at  a  pace  above 
household formation (despite the fact that recent reduced supply and price increases of building materials 
could dent construction) and rising interest rates. A risk to the housing market is the high indebtedness of 
first-time buyers. A prolonged increase in interest rates will hit in particular this group that assumed high 
debt  to  enter  the  housing  market  and  their  ability  to  move  up  the  property  ladder  will  be  reduced. 
Moreover, for potential homeowners the entrance into the housing market will become even more costly. 
Policy  actions  can  attenuate  the  housing  market  risks  by  promoting  appropriate  conditions  for  new 
housing supply including of public housing, reforming the rental market and by letting off steam on the 
demand  side  through  reducing  the  regressive  tax  bias  favouring  homeownership.  The  latter  would  also 
reduce foregone tax revenue. 

The banking sector continues to have sound financial and capital ratios but has a large exposure to 
housing and commercial property loans. On average, non-performing loans ratios of Swedish banks are 
among the lowest in the EU at 0.9% in the second quarter of 2021. While risk-weighted capital ratios are 
above prudential requirements, the level of own funds on a non-risk weighted basis is comparatively low, 
as evidenced by the leverage ratio. The return on equity of banks dropped significantly in the wake of the 
COVID-19 crisis in early 2020, veered back during the year but was still below historical performance in 
the  2021Q3,  at  8%.  Bank  balance  sheets  remain  heavily  skewed  towards  housing  and  commercial 

(8)  ECB, Statistical Data Warehouse 
(9)  Boverket (2021), “Building projections for 2021 and 2022”, December 2021 

5 

0.000.100.200.300.400.500.600.700.800.0%5.0%10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%20202019201820172016201520142013201220112010200920082007200620052004200320022001200019991998199719961995199419931992199119901989198819871986198519841983198219811980Land underlying buildings (% total assets)Dwellings (% total assets)Land/dwelling asset value ratio (l-axis)    
 
                                                           
2. Assessment of macroeconomic imbalances 

property loans. Real estate mortgage loans to households constituted 68% of GDP and 33% of total bank 
assets as of 2021 Q3 and mortgage loans to non-financial corporations constituted 32% of GDP and 15% 
of total bank assets. (10) Households’ total net wealth has continued to improve as equity and house prices 
rose  and  the  corporate  sector is  generally  well  funded  with  sufficient  access  to  capital  through  markets 
and/or banks. These bank assets, and those of other financial institutions providing property financing, are 
exposed to declines in house prices. Swedish bank claims outside Sweden represented 18% of total assets 
at the end of 2021. Of that 18% share, the rest of the EU represented 82% with Swedish banks having a 
particularly  strong  presence  in  Baltic  countries (11).  Sweden’s  financial  exposures  to  Russia  are  also 
below the EU average (see box 2.1). 

Assessment of MIP relevant policies 

The initial strong policy response to COVID-19, which supported the housing market, is set to be 
progressively reduced. The broad and strong policy response to dampen the impact of the crisis on the 
economy  had  a  monetary  policy,  a  financial  supervision  and  a  fiscal  dimension.  These  included  the 
temporary suspension of the amortisation requirement, the broad set of government support measures to 
individuals  and  businesses,  as  well  as  reduced  liquidity  constraints  in  the  financial  system  (liquidity 
support including covered bonds purchases, release of the countercyclical capital buffer, temporary easing 
of liquidity coverage ratios, encouraging suspension of dividend payments). Together with the lowering 
of the capital gains tax on housing, these measures supported the housing market and house prices.  

Some limited policy measures have been taken to address the housing market and household debt 
imbalances. The Financial Supervisory Authority (Finansinspektionen, FSA) reinstated the amortisation 
requirement  as  from  1  September  2021.  The  FSA  is  also  set  to  raise  the  countercyclical  capital  buffer 
from  0  to  1%  effective  as  of  29  September  2022.  The  capital  buffer  of  banks  for  housing  loans  was 
maintained through an extension of the risk-weight floor for residential mortgage exposures. Outside of 
the housing market, the FSA raised capital requirements specifically for bank loans for commercial real 
estate. Moreover, the FSA recommended banks to be restrictive in using earnings for dividend pay-outs 
and share  buybacks  from December 2020 until September 2021 (12). On the supply  side  of the housing 
market,  Sweden continued investment support of comparatively limited amounts  for rental housing and 
housing for students and amendments to the building and planning act. In March 2022, the Government 
Official Report (SOU 2022:14) on the division of tasks between the state and municipalities in the field of 
housing  policy  was  presented.  It  is  a  first  step  towards  more  social  sustainability  of  housing (13).No 
actions  have  been  taken  to  reform  the  rental  market  (liberalising  rents  in  newly  produced  and  existing 
rental real estate) or to address the debt bias in housing taxation. The change in the capital gains tax is set 
to increase turnover in the housing market by facilitating housing moves. On the other hand, the windfall 
in  capital  gains  could  spur  house  price  increases,  in  particular  in  higher  price  segments  and  in  holiday 
homes. The full and unconditional tax deductibility of mortgage interest payments and the low ceiling on 
recurrent  property  taxation  have  not  been  addressed.  Planning  and  building  regulations  in  combination 
with the approaches differing between municipalities, weak competition in the construction sector and the 
high level of rent control limit the supply of new houses. The Swedish RRP contains three measures to 
ease  building  regulations,  one  investment  measure  for  rental  and  student  accommodation  (expected  to 
lead  to  the  construction  of  4 800  dwellings)  and  the    reduction  of  the  capital  gains  tax  in  two  steps 
(removing  interest  payments  on  deferred  capital  gains  and  raising  the  maximum  amount  that  can  be 
deferred).  

Conclusion 

Sweden  is  facing  vulnerabilities  relating  to  high  and  rising  house  prices  and  high  household 
indebtedness.  In  2021,  house  prices  moved  further  away  from  fundamental  values  and  high  household 
debt  exposes  Sweden  to  potential  adverse  shocks  and  a  possible  disorderly  correction  of  the  housing 
market prices  with harmful implications  for the real economy and the banking sector. Given the strong 

(10)  Most figures in these paragraph refer to consolidated banking statistics as reported by the ECB for 2021Q3. Figures for foreign 

exposures refer to unconsolidated MFI balance sheet statistics as reported by the ECB.  

(11)  Statistics Sweden, Financial Market Statistics 
(12)  https://fi.se/en/published/press-releases/2020/financial-firms-must-be-restrictive-with-dividends-until-september-2021/ 
(13)  Among its proposals are to enact a new Housing Supply Act, ensuring that there is a national as well as municipal plans for the 

provision of housing, and that municipalities are required to give rental guarantees to families with children. 

6 

                                                           
2. Assessment of macroeconomic imbalances 

presence of Swedish banks in other Member States, spillover effects cannot be excluded. Private-sector 
debt has risen to well above 200% of GDP with concerns mounting due to the large share of real estate – 
both commercial real estate and housing. Households have increasingly assumed debt as the interest rate 
declined, making them vulnerable to changes in the interest rate for their debt service costs. Furthermore, 
fiscal incentives for housing loans imply foregone tax revenue and may divert investment in productive 
and innovative assets. Exposures to energy prices are a particularly pressing concern, while exposures to 
Russia are significantly lower than the EU average (see box 2.1). 

Policy measures have not sufficiently addressed vulnerabilities relating to housing debt and house 
price imbalances. While the Swedish authorities have used macro-prudential policies to assuage the fall-
out from the  pandemic and reversed these, tax incentives  for debt financed  housing remain, along  with 
shortages in supply and lack of actions to reform the rental market. At the same time, supportive financial 
conditions continued to add to housing demand. 

Based  on  the  findings  in  this  in-depth  review,  the  Communication  “European  Semester  –  2022 
Spring  Package” (14)    sets  out  the  Commission’s  assessment  as  to  the  existence  of  imbalances  or 
excessive imbalances in Sweden, in line with Regulation 1176/2011. 

(14)  European Commission (2022), European Semester Spring Package 2022, COM(2022)600 final. 

7 

                                                           
2. Assessment of macroeconomic imbalances 

Box 2.1: 

Exposures to the commodity price surge, and to Russia 

This  box  summarizes  risks  and  exposures  regarding  the  commodity  price  surge,  and  the 
importance of direct links with the Russian economy. The surge of commodity prices since 2021 
had been aggravated by the Russian military aggression against Ukraine. This box reviews  the risks 
for  the  macroeconomic  vulnerabilities  in  Sweden.  Available  data  suggest  that  exposures  to  energy 
prices are a concern, while exposures to Russia are significantly lower than the EU average. The rise 
in energy prices that started in 2021 and that accelerated recently has been large and prolonged, and 
contributes to a generalized price increase. Inflation in 2021 was 2.7% in contrast with 0.7% in 2020, 
is forecast to accelerate to 5.3% in 2022, and moderate subsequently. 

Graph b.1.1: 

Sectoral distribution of energy use and of energy imported from Russia 

Notes: The left panel displays the distribution of primary energy usage in Sweden according to Eurostat energy balances. The horizontal axis displays the 
relative importance of energy-consuming sectors. The vertical axis puts in evidence the importance of energy imports from Russia in satisfying that need. 
Note that this dependence on Russia differs according to sector’s use of natural gas vs oil and coal. For comparison, the right hand panels displays the same 
concept for the EU aggregate. Russian imports include oil and petroleum products,natural gas and solid fossil fuels. 
Sources: Eurostat and European Commission services calculations 
The Swedish economy depends less on energy imports and on imports from Russia than the 
EU  average (1).  This  reflects  the  reliance  of  the  Swedish  economy  on  renewables  and  nuclear 
energy. Solid fossil fuels, crude oil, and natural gas account for less than 25% of gross inland energy 
consumption.  On  oil  and  gas,  the  share  of  Swedish  imports  from  Russia  is  also  below  the  EU 
average.  In  2020  Sweden  imported  8%  of  its  crude  oil  and  13%  of  its  gas  imports  from  Russia, 
compared to whereas the 26% for crude oil, and 44% for gas in the EU aggregate. 

The distribution of energy usage by sector is roughly comparable to the EU average except 
for the industrial sector, which uses a higher share of energy.  The Swedish economy uses less 
fossil  energy  sources  compared  to  its  GDP  than  most  EU  Member  States  (Graph  b.1.1).  The 
transport  sector  and  in  particular  the  road  transport  is  the  main  user  of  the  imported  petroleum 
products.  The  industrial  sector,  which  is  the  main  user  of  energy,  relies  mostly  on  electricity  and 
biofuels,  with  the  use  of  fossil  fuels  decreasing  in  the  last  years.  Electricity  and  district  heating 
account for more than 80% of the energy used in the residential and service sector (2).  

The  fuel  price  surge  is  likely  to  have  an  impact  on  the  trade  balance.  The  commodity  price 
effect  is  expected  to  depress  the  trade  balance  in  2022  by  1  pp.  of  GDP  (see  Graph  b.1.2).  This 
terms-of-trade effect is unlikely, however, to make a significant dent into the overall current account 
surplus. 

8 

 
 
 
 
 
 
 
Graph b.1.2: 

Sweden goods and service trade balance – fossil trade contribution 

2. Assessment of macroeconomic imbalances 

Notes: The graph displays the trade balance as % of GDP, and highlights net trade of petroleum products, natural gas and solid fossil fuels (mainly coal), in 
2015 import prices. The ‘fossil price impact’ component details the impact of price changes on the (also changing) real trade balance. 2022 and 2023 figures 
reflect central assumptions of the Commission spring forecast, notably combining the forecasted fossil price evolution with broadly forecasted import 
quantities of fossil energy sources. 
On  the  top  of  lower  energy  exposures  to  supply  disruptions  related  to  Russia’s  aggression 
against  Ukraine,  Sweden’s  financial  and  trade  exposures  to  Russia  are  also  below  EU 
average.  The  lower-than-average  exposure  of  the  Swedish  economy  is  also  evident  in  trade  and 
investment. The value added produced in Sweden for Russian final demand is comparable with the 
EU average. In the similar vein, non-energy Russian import content in Swedish final demand equals 
0.4% of GDP (see Table b.1.1). On tourism, FDI assets and liabilities, portfolio assets or liabilities or 
banking exposures to Russia, the Swedish economy exposures are significantly lower than the EU on 
average. 

Table b.1.1:  

Selected exposures 

Notes: data source Eurostat for commodity exposures, European Commission Figaro for value-added exposures, BIS for consolidated banking exposures, 
European Commission FinFlows for other financial exposures. Energy gross inland consumption excludes net imports of electricity and derived heat.  

(1)  Sweden energy dependence ratio (net imports over gross available energy) was 33.5% in 2020, while in the same year 

the EU energy dependence ratio was 57.5%. 

(2)  Source: Energy in Sweden 2021 – an overview, Swedish Energy Agency. 

9 

Trade & financial exposuresunitSEEUEnergy mixunitSEEUDomestic value added embodied in exports to Russia% of GDP0.3%0.4%Solids fossil fuels (incl. peat)% of Gross inland consumption 20203.2%10.8%Non-energy Russian import content in final demand% of GDP0.4%0.4%Oil and petroleum products% of Gross inland consumption 202017.7%32.7%Russian tourist nights spent% of total 20190.9%2.7%Natural gas% of Gross inland consumption 20202.6%24.4%FDI assets held in Russia% of 2020 GDP0.8%2.5%Renewables and waste% of Gross inland consumption 202051.1%19.0%Portfolio & other inv. assets held in Russia% of 2020 GDP0.4%0.9%Nuclear% of Gross inland consumption 202025.4%13.1%FDI liabilities towards Russia% of 2020 GDP0.1%1.2%Commodity exposuresunitSEEUPortfolio & other inv. liabilities towards Russia% of 2020 GDP0.1%1.1%Net petroleum imports from all countries% of GDP 20210.9%1.2%Consolidated banking exposures towards Russia% of 2021 GDP0.0%0.5%Crude oil imports from Russia '20% of oil imports7.7%25.7%Net gas imports from all countries% of GDP 20210.1%0.6%Gas imports from Russia '20% of gas imports12.7%43.6% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table 2.1: 

Selected economic and financial indicators (Part 1), Sweden 

2. Assessment of macroeconomic imbalances 

(e) estimate based on ECB quarterly data 
(1) Potential output is the highest level of production that an economy can reach without generating inflationary pressures. 
The methodology to compute the potential output is based on K. Havik, K. Mc Morrow, F. Orlandi, C. Planas, R. Raciborski, W. 
Roeger, A. Rossi, A. Thum-Thysen, V. Vandermeulen, The Production Function Methodology for Calculating Potential Growth 
Rates & Output Gaps, COM, European Economy, Economic Papers 535, November 2014. 
(2) Deviation of actual output from potential output as % of potential GDP. 
(3) Current accounts in line with fundamentals ("current account norms") are derived from reduced-form regressions 
capturing the main determinants of the saving-investment balance, including fundamental determinants, policy factors and 
global financial conditions. See L. Coutinho et al. (2018), "Methodologies for the assessment of current account benchmarks", 
European Economy, Discussion Paper 86/2018, for details.  
(4) This benchmark is defined as the average current account required to reach and stabilise the NIIP at -35% of GDP over the 
next 20 years. Calculations make use of Commission’s T+10 projections. 
(5) NENDI is a subset of the NIIP that abstracts from its pure equity-related components, i.e. foreign direct investment (FDI) 
equity and equity shares, and from intracompany cross-border FDI debt, and represents the NIIP excluding instruments that 
cannot be subject to default. 
(6) Fundamentals-based benchmarks are derived from regressions capturing the main determinants of credit growth and 
taking into account a given initial stock of debt. Prudential thresholds represent the debt threshold beyond which the 
probability of a banking crisis is relatively high, minimising the probability of missed crisis and that of false alerts. Methodology 
to compute the fundamentals-based and the prudential benchmarks based on Bricongne, J. C., Coutinho, L., Turrini, A., 
Zeugner, S. (2019), “Is Private Debt Excessive?”, Open Economies Review, 1- 42. 
Source: Eurostat and ECB as of 2022-05-02, where available; European Commission for forecast figures (Spring forecast 2022) 

10 

all variables y-o-y % change unless otherwise stated2003-072008-122013-17201820192020202120222023Real GDP 3.50.72.62.02.0-2.94.82.31.4Potential growth  (1)2.81.72.02.22.01.71.91.71.7Contribution to GDP growth:Domestic demand 2.81.02.81.40.3-2.54.82.10.6Inventories 0.2-0.10.20.3-0.1-0.70.40.10.1Net exports 0.5-0.1-0.30.31.80.2-0.40.00.7Contribution to potential GDP growth (1):Total Labour (hours) 0.50.70.80.80.60.40.50.40.5Capital accumulation 0.70.60.70.80.80.70.80.80.8Total factor productivity 1.60.40.50.60.70.60.60.50.5Output gap (2)1.1-1.6-0.50.50.4-4.2-1.4-0.8-1.2Unemployment rate6.77.97.66.57.08.58.87.87.0Harmonised index of consumer prices (HICP)1.51.90.92.01.70.72.75.33.0GDP deflator 1.41.71.72.42.51.83.04.33.9External positionCurrent account balance (% of GDP), balance of payments6.86.13.62.75.56.15.54.95.8Trade balance (% of GDP), balance of payments6.55.23.82.34.44.74.4..Primary income balance (% of GDP)1.82.61.42.02.93.53.0..Secondary income balance (% of GDP)-1.4-1.7-1.5-1.6-1.9-2.1-1.9..Current account explained by fundamentals (CA norm, % of GDP) (3)0.80.70.50.50.50.60.70.70.7Required current account to stabilise NIIP above -35% of GDP over 20Y (% of GDP) (4)-0.5-0.1-0.4-0.10.30.70.60.80.9Capital account balance (% of GDP)-0.1-0.2-0.10.00.00.10.2..Net international investment position (% of GDP)-12.9-8.9-6.48.116.214.117.8..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-23.0-22.1-17.5-14.7-8.1-6.4-5.6..Net FDI flows (% of GDP)2.82.51.20.04.82.94.4-0.22.1CompetitivenessUnit labour costs (ULC, whole economy)1.12.81.43.51.54.30.82.63.2Nominal compensation per employee 3.93.02.33.83.02.54.32.73.7Labour productivity (real, hours worked)2.70.11.00.42.30.32.20.30.1Real effective exchange rate (ULC)-0.31.2-1.1-3.4-4.9....Real effective exchange rate (HICP)-0.80.0-1.7-3.9-3.83.03.0..Export performance vs. advanced countries (% change over 5 years)4.7-5.8-9.2-8.8-4.45.0...Private sector debtPrivate sector debt, consolidated (% of GDP)151.2190.5193.7195.2198.7212.5218.0..Household debt, consolidated (% of GDP)59.775.183.788.188.594.693.7..Household  debt, fundamental benchmark (% of GDP) (6)58.165.972.774.374.879.578.3..Household  debt, prudential threshold (% of GDP) (6)47.853.666.967.772.271.570.3..Non-financial corporate debt, consolidated (% of GDP)91.5115.4110.0107.1110.2117.9124.3..Corporate debt, fundamental benchmark (% of GDP) (6)80.887.292.291.791.596.494.6..Corporate debt, prudential threshold (% of GDP) (6)61.664.981.879.082.582.982.0..Private credit flow, consolidated (% of GDP) 11.17.87.78.910.012.616.9..Corporations, net lending (+) or net borrowing (-) (% of GDP)4.72.1-1.8-3.3-1.91.1-0.80.51.3Households, net lending (+) or net borrowing (-) (% of GDP)0.53.95.25.16.57.66.74.94.1Net savings rate of households (% of net disposable income)4.710.413.013.615.718.016.9..forecast 
 
    
 
 
 
Table 2.2: 

Selected economic and financial indicators (Part 2), Sweden 

2. Assessment of macroeconomic imbalances 

(7) Unweighted average of price-to-income, price-to-rent and model valuation gaps. The model valuation gap is estimated 
in a cointegration framework using a system of five fundamental variables; total population, real housing stock, real 
disposable income per capita, real long-term interest rate and price deflator of final consumption expenditure, based on 
Philiponnet, N., Turrini, A. (2017), "Assessing House Price Developments in the EU," European Economy - Discussion Papers 2015 - 
048, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission. Price-to-income and price-to-
rent gaps are measured as the deviation to the long term average (from 1995 to the latest available year). 
(8) Price-to-income overvaluation gap measured as the deviation to the long term average (from 1995 to the latest available 
year). 
(9) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
Source: Eurostat and ECB as of 2022-05-02, where available; European Commission for forecast figures (Spring forecast 2022) 

11 

all variables y-o-y % change unless otherwise stated2003-072008-122013-17201820192020202120222023Housing marketHouse price index, nominal10.13.28.5-0.92.54.210.2..House price index, deflated9.01.57.3-3.30.43.08.1..Overvaluation gap (%) (7)-7.61.818.024.323.126.534.8..Price-to-income overvaluation gap  (%) (8)-5.83.121.629.828.633.740.2..Residential investment (% of GDP)3.73.74.75.24.75.05.3..Government debtGeneral government balance (% of GDP)1.3-0.1-0.10.80.6-2.7-0.2-0.50.5General government gross debt (% of GDP)45.838.242.438.934.939.636.733.830.5Banking sectorReturn on equity (%).10.011.511.910.68.1...Common Equity Tier 1 ratio.10.119.518.619.820.8...Gross non-performing debt (% of total debt instruments and total loans and advances) (9).0.61.00.80.90.8...Gross non-performing loans (% of gross loans) (9)..1.31.01.11.00.9..Cost of borrowing for corporations (%)..1.21.21.51.41.4..Cost of borrowing for households for house purchase (%)..1.61.51.51.41.4..forecast 
   
 
3.  THEMATIC CHAPTER: HOUSING MARKET AND PROPERTY 

TAXATION 

The  Swedish  economy  has  been  identified  with  imbalances  related  to  high  house  prices  and 
household debt since 2011. Sweden’s real estate market registered strong house price growth during the 
pandemic, while household debt continued to increase, further aggravating vulnerabilities (see chapter 2). 
In  previous  publications,  the  European  Commission (26)  already  analysed  in  more  detail  the  underlying 
drivers of these imbalances, in particular the tax incentives stemming from mortgage interest deductibility 
and  low  property  tax,  the  regulated  rental  market  and  the  lack  of  housing  supply.  In  addition,  housing 
affordability was covered, focusing on different developments in the income and house price distribution, 
concluding that for households with lower incomes entering the owner occupied housing market became 
increasingly difficult. In this thematic chapter, the previous analysis is complemented with an assessment 
of the fiscal costs associated with relatively low housing taxation in Sweden. 

Both  the  owner-occupied  and  the  rental  market,  lack  sufficient  supply  and  are  only  limited 
substitutes for each other. The owner and tenant-owned occupation rate of housing in Sweden is around 
60% and the rental market represents around 40%. Both markets face a shortage of supply and the related 
policy challenge of increasing the housing stock. The rental market is regulated, resulting in rents that do 
not  reflect  market  conditions  and  limited  supply,  resulting  in  long  waiting  times  and  therefore 
incentivising ownership. The most important incentives in the purchase market come from currently very 
low interest rates and tax incentives supporting the uptake of household debt. For households without the 
capacity  to  acquire  a  home  because  of  low  wealth  and/or  too  low  income,  the  purchase  market  is  no 
alternative for the rental market. This group cannot benefit from policy incentives lowering the user costs 
of housing and has to cope with long waiting times in the rental market.  

Tax  expenditures  supporting  home  ownership  are  significant.  The  Swedish  tax  system  allows 
households to deduct 30% of interest expenditures from payable income taxes up to an amount of SEK 
100 000. For deductions above SEK 100 000 the rate declines to 21%. Although all interest expenditures 
are deductible, mortgage interest payments are dominant in the interest deductions from taxes. Graph 3.2 
shows an estimate of the tax expenditure’s size since 2009. In this estimate, the applied average mortgage 
rates were 2 ½% in 2009 and 2010, 4% in 2011 and 2012, 3% in 2013, 2 ¾% in 2014 and 2% from 2015 
onwards.  According  to  bank  balance  sheet  data,  91%  of  the  loans  to  households  consisted  of  loans 
collateralized  by  property  in  2021Q3. (27)  This  is  taken  as  the  reference  for  calculating  the  cost  of  the 
mortgage interest deductibility. The applicable deduction rate is assumed to be 30%. The tax expenditure 
was an estimated 0.75% of GDP in 2011 and 2012 when mortgage rates reached 4%. Since then, the costs 
of  mortgage  interest  deductibility  has  fallen  to  around  0.4%  of  GDP  per  year  as  mortgage  rates  have 
fallen to around 2%. 

The  mortgage  interest  deductibility  has  dampened  the  windfall  profit  of  lower  interest  rates  to 
homeowners and incentivized new homeowners to take  on larger debt. Declining  mortgage interest 
rates lowered mortgage interest payments. Lower mortgage interest payments imply a lower deductibility 
from taxes. A lower deductibility from taxes implies that after tax the interest payments have decreased 
less than they  would have  without deductibility. Thereby, the  mortgage interest deductibility dampened 
the positive impact of declining mortgage rates for existing homeowners. At the same time, house prices 
have  increased  by  more  over  the  past  eight  years  than  the  net  positive  impact  of  ‘after-tax’  mortgage 
interest payments and other factors affecting housing affordability can explain (see Graph  3.3). If house 
prices  increased  by  more  than  can  be  explained  by  after-tax  decreases  in  interest  rates  and  other 
fundamentals  determining  the  maximum  attainable  house  price  (see  Andrle  et  al,  2019 (28))  than  these 
new homeowners have likely increased debt levels. Indeed, such an increase in debt for new homeowners 

(26)  European Commission (2020), “Country report Sweden 2020”, European Commission Staff Working Document  SWD(2020) 
526 and European Commission (2020), “In-Depth Review for Sweden 2021”, European Commission Staff Working Document 
SWD(2021) 412 

(27)  The figures quoted here refer to domestic banking groups from ECB consolidated banking statistics.  
(28)  Andrle, M., Plašil, M., and Hunt, B.L. (2019), “Assessing House Prices in Canada”, IMF Working Paper 2019 (248) 

12 

 
                                                           
3. Thematic chapter: Housing market and property taxation 

is in line with data on new mortgages (Finansinspektionen, 2021 (29). The mortgage interest deductibility 
(MID)  enables  households  to  increase  debt  levels,  as  their  after-tax  budget  constraint  is  looser  than 
without the MID. That is, under the budget constraint of households the deductibility creates more room 
for higher debt. These new homeowners are now more dependent on the MID for housing affordability  
than earlier cohorts.    

Sweden has low taxes on real estate, which are capped at a low level. Recurrent taxes are levied in 
Sweden  as  municipal  fees  for  residential  buildings  and  as  state  taxes  for  industrial  and  commercial 
property. Recurrent property taxation is the major tax on properties in Sweden, even if low, and in most 
EU countries. In Sweden, property owners pay a local property fee (kommunal fastighetsavgift). This fee 
is capped at a low ceiling (30), resulting in a highly favourable tax treatment of owner-occupied housing 
compared  to  other  investments,  and  low  overall  tax  revenues  from  property  by  international  standards 
(see Graph  3.1). Both tax revenues from recurrent property tax (0.7% of GDP in 2020) and other taxes 
(0.4% of GDP) are below the EU average (1.2% and 1.0% respectively). The lowering of the capital gains 
tax in July 2020 and January 2021 has likely reduced further revenue from property taxation.  

Recurrent taxes do not live up to their revenue potential. The municipal fee funds local expenditures 
like  schooling and infrastructure. The  nominal  tax rate  is  0.75% of assessed value  for most  houses and 
0.3% for apartments. As a consequence of the low cap, the fee is a fixed amount for most homeowners. 
There  are  also various exemptions and further limitations in place, like  for pensioners or for new-build 
properties. The assessed value on which the rate is applied should represent 75% of the market value two 
years preceding the year of the assessment. Using data on the assessed value and the number of dwellings, 
Graph  3.4  below  shows  a  rough  estimate  of  the  impact  the  cap  has  on  local  revenues  compared  to  a 
situation  without  a  cap.  Graph  3.4shows  the  development  of  the  assessed  value  and  the  hypothetical 
assessed value (75% of the market value in t-2). Taken together, the recurrent property tax is some ½ % 
of  GDP  below  what  it  could  be  without  a  cap  and  with  the  assessed  value  closely  following  the  legal 
reference value. 

The tax advantages for owner-occupied housing and rental market regulation lead to inefficiencies 
and  inequity  in  the  housing  market.  The  interest  deductibility  and  relatively  low  property  taxes  in 
Sweden seem to have had little positive impact on housing affordability, whereas they have reduced tax 
revenues for the state, which could have for instance been used to lower taxes on labour (see Burgert et al, 
2016) (31) or promoting investments in public housing. Moreover, these tax advantages have contributed 
to increased property prices and, thereby, reduced the attainability of house acquisition, while access to 
rented  accommodation  is  subject  to  long  waiting  times.  Finally,  the  low  tax  revenue  accruing  to 
municipalities reduces their incentive to offer buildable land for housing projects and capacity to finance 
schooling and infrastructure.  

(29)  Finansinspektionen (2021), “The Swedish Mortgage Market (2021)” 
(30)  The nominal tax rate of the local property fee is 0.75 % of assessed value for most houses and 0.3 % for apartments, but the tax 
is capped at a relatively  low level  (as of 2018,  SEK 7 812 and SEK 1 337 per year for single-family houses and apartments 
respectively). In practice, therefore, most owners pay a flat fee that does not scale up with property value or imputed rent level. 
(31)  Burgert, M., D’Souza, P., and Vermeulen, G. (2016), “House prices and indebtedness in Sweden: a model-based assessment of 

policy options”, European Commission DG ECFIN Economic Brief 21 

13 

                                                           
Graph 3.1: 

Recurrent and other property taxes (% of GDP,2020) 

3. Thematic chapter: Housing market and property taxation 

Source: Eurostat 

Graph 3.2:  Household debt (SEK mln) and tax expenditure (%of GDP, r-axis) 

Source: SCB, Compricer.se and Commission services 

14 

0.00.51.01.52.02.53.03.54.04.55.0FranceBelgiumGreeceSpainDenmarkLuxembourgItalyEA-19PortugalEU-27NetherlandsPolandFinlandGermanyHungaryCroatiaIrelandSwedenLatviaAustriaCyprusBulgariaMaltaSloveniaRomaniaSlovakiaLithuaniaCzechiaEstoniaRecurrent property taxesOther taxes0.3%0.4%0.5%0.6%0.7%0.8%01,000,0002,000,0003,000,0004,000,0005,000,0006,000,0002009201020112012201320142015201620172018201920202021household debt,SEK mlnHousehold debtTax expenditures (% of GDP, RHS)  
 
   
 
Graph 3.3: 

Sweden national average: Actual vs. 'attainable' house price change 

3. Thematic chapter: Housing market and property taxation 

Source: JRC, Eurostat, Ameco, Commission services  

Graph 3.4: 

Foregone municipal revenues from property fees due to the cap and lags in assessed value 

Source: SCB, Commission services 

15 

-10.0-5.00.05.010.015.020.025.012131415161718192021pp contr. to annnual % changeTax&Ben contrMortgage rate contrIncome contr"Attainable" price changeActual price change0.0%0.1%0.2%0.3%0.4%0.5%0.6%2014201520162017201820192020% of GDPAdditional revenues no capAdditional revenues legal reference value  
 
        
 
Table 3.1: 

Selected housing indicators 

3. Thematic chapter: Housing market and property taxation 

(1) Price to income in level is the number of years of income necessary to buy an assumed 100m2 dwelling. See Bricongne, J-
C, A Turrini, and P Pontuch, (2019), “Assessing House Prices: Insights from HouseLev, a Dataset of Price Level Estimates”, 
European Economy - Discussion Paper 101, Directorate General Economic and Financial Affairs (DG ECFIN), European 
Commission. 
(2) Price-to-income and price-to-rent gaps are measured in deviation to the long term average (from 1995 to the latest 
available year).  
(3) The model valuation gap is estimated in a cointegration framework with nominal house prices as the dependent variable 
and five fundamental explanatory variables:  total population, real housing stock, real disposable income per capita, real 
long-term interest rate and price deflator of final consumption expenditure. See Philiponnet N., Turrini A. (2017), "Assessing 
House Price Developments in the EU", European Economy - Discussion Papers 2015 - 048, Directorate General Economic and 
Financial Affairs (DG ECFIN), European Commission. 
(4)  Unweighted average of price-to-income, price-to-rent and model valuation gaps. 
Source: (a) Eurostat, (b) Eurostat, OECD, ECB, BIS, Ameco, national sources, European Commission calculations, (c) European 
Commission calculations, (d) ECB, Ameco (e) Ameco (f) ECB . 

16 

2003-072008-122013-17201820192020202121Q121Q221Q321Q4House price developmentsUnitSourceReal house price, yoy growth%(a)9.01.67.4-3.30.43.08.15.89.19.68.1Nominal house price, yoy growth%(a)10.13.28.5-0.92.54.210.27.210.911.311.1Price to income in level (1)years(b)7.88.510.010.710.611.011.611.410.612.312.0Valuation gapsPrice to income gap (2)%(c)-5.83.121.629.828.633.740.238.439.640.842.0Price to rent gap (2)%(c)-14.64.228.845.045.949.362.258.261.463.765.2Model valuation gap (3)%(c)-2.9-3.41.2-3.9-6.8-5.40.7-1.3-0.11.23.0Average house price gap (4)%(c)-7.81.317.223.622.625.834.431.833.635.236.7Housing creditBank mortgages (% GDP)%(d)40.255.763.067.969.176.371.6Bank mortgages, yoy growth%(d)13.610.14.21.33.110.14.6Housing supplyResidential construction - dwellings  (% GDP)%(e)3.73.74.75.24.75.05.3Residential construction - dwellings, yoy growth%(e)28.7-4.611.0-6.4-6.53.311.1Non-residential construction (% GDP)%(e)4.85.45.35.96.16.05.6Value added in the construction sector, yoy growth%(e)9.6-0.73.02.3-0.90.90.4Building permits, yoy growth%(a)15.8-1.822.0-16.6-10.517.617.8Number of transactions, yoy change%(f)5.1-2.52.9-4.8Other housing market indicatorsShare of owner-occupiers, with mortgage or loan%(a)54.057.956.451.751.452.1