One could say that what we need to achieve is a “slow puncture”, where we gradually return to a more sustainable situation, with a considerable reduction of the risk of a household debt overhang causing problems. This is of course a substantial challenge and can hardly be managed unless several policy areas collaborate in the process. I have so far talked about the housing market mainly from a monetary policy perspective – where the main problem is that rising house prices are reflected in rising debt, which makes the economy more vulnerable to shocks. But there are of course other, more structural reasons why it is desirable that the housing market functions well. One is that a poorlyfunctioning housing market can lead to poorer geographical mobility, which can put a spanner in the works of the labour market. This has a negative effect on the conditions for growth.16 Another reason is that supply restrictions in the housing market result in an unjustifiable redistribution of wealth from future house buyers to existing house owners. The problems on the Swedish housing market have been debated for decades, but I perceive that the discussion has recently been particularly intensive.17 Perhaps the time is now ripe for some substantive political action? 15  A study by Jahnson and Lundberg (2013) estimates that prices on the Swedish housing market today are roughly one third higher than if construction had developed in the same way as in Finland over the past fifteen years.

It is not enough, for instance, to focus on dampening households’ demand for housing. If the reprogramming of the system is to succeed, we will also need reforms that increase housing construction. References Bank of Canada (2013), Bank of Canada maintains overnight target rate at 1 per cent. Press release, 23 October 2013. Bech, Morten L., Gambacorta, Leonardo and Kharroubi, Enisse (2012), Monetary policy in a downturn: Are financial crises special? BIS Working Papers No. 388. Blanchard, Olivier, Dell’Ariccia, Giovanni and Mauro, Paolo (2013), Rethinking Macro Policy II: Getting Granular. IMF Staff Discussion Note 13/03, International Monetary Fund. Bordo, Michael D. and Landon-Lane, John (2013), Does Expansionary Monetary Policy Cause Asset Price Booms? NBER Working Paper No. 19585. Borio, Claudio (2013), Central-Banking Post Crisis: What Compass for Uncharted Waters? – Postscript. Mimeo. Under publication in Goodhart, Charles, Gabor, Daniela, Ertürk, Ismail and Vestergaard, Jakob (eds. ), Central Banking at a Crossroads: Europe and Beyond, Anthem Press, London. Carney, Mark (2013), Monetary Policy After the Fall. Speech at the University of Alberta 1 May 2013. Bank of Canada. Chakraborty, Indraneel, Goldstein, Itay and MacKinlay, Andrew (2013), Do Asset Price Bubbles have Negative Real Effects? University of Pennsylvania Working Paper. Dagens Industri (2013), Bostadskrisen kräver flera lösningar. (Housing crisis requires several solutions.) Editorial, 1 November. Dynan, Karen (2012), Is a Household Debt Overhang Holding Back Consumption? Brookings Papers on Economic Activity, Spring 2012. ESRB (2013), Recommendation of the European Systemic Risk Board of 4 April 2013 on intermediate objectives and instruments of macro-prudential policy (ESRB/2013/1).