Sweden’s Riksbank publishes analysis warning of housing oversupply and rising rental vacancies with limited lender exposure

Sweden’s Riksbank published an Economic Commentary by Karin Östling Svensson assessing how demographic shifts could increase housing vacancies and lenders’ credit risk. The analysis finds a growing risk that housing supply will exceed demand over the next decade, pushing up vacancy rates in parts of the rental market, while concluding that risks to the banking system and financial stability are currently limited. Population growth is projected at 1.9% by 2034, down from 8.6% over the previous decade, with more than half of municipalities expected to see population declines. The commentary indicates that smaller municipalities, particularly those with fewer than 25,000 inhabitants, are most exposed to potential imbalances, with surpluses expected to affect rental housing first given lower transaction costs for households to move. Using collateral values for rental residential property as a proxy for lenders’ exposures, the analysis estimates that 3% (SEK 27 billion) of collateral is in municipalities with moderate or elevated risk using absolute thresholds, or 10% (SEK 85 billion) using relative thresholds, out of SEK 837 billion in total collateral. It notes that most collateral volume is located in low-risk municipalities, but that local imbalances could intensify over time and lead to broader socio-economic costs, particularly for smaller, geographically concentrated housing companies.