How To Create A Housing Bubble - The Swedish Way

Housing prices in Stockholm are going through the roof. Only the last year alone the average prices went up 13%. It seems like the Swedish government has made it a sport to let prices rise as fast as possible. So, now you can have your own housing bubble! Just follow these ten simple steps, and you'll have the real estate value you always dreamed of in no time.

1. Keep interest rates low: this is a great way to stimulate home ownership. Because people will have a lower monthly costs on their loans, it’s more likely that they will lend more than they would with higher interest rates. Also, having savings on the bank is less profitable when interest rates are low, making it more interesting to invest savings in real estate.  Of course this might lead to problems when interest rates rise again, but hey, if you’re a bit serious about creating a housing bubble you can worry about that later.

2. Pay a part of your citizens’ interest: even with extremely low interest rates on mortgages (let’s say around 1.5%), the burden of monthly instalments can be quite high. Paying 30% of your citizens’ interest rates does not only make it easier for people to buy a home, it also means that the more expansive the house is they buy, the more money they’ll get. That’s a great way to promote expensive housing. Every year the Swedish government spends about 30 billion SEK, or 3.5 billion US Dollars, on the reduction of mortgage interest rates for Swedish home owners, that’s what I call a commitment to housing bubbles.

3. Discourage renting 1: renters won’t help you create a decent housing bubble, so make sure you don’t give them a housing subsidy like you do to buyers. Yes, of course the rental sector is where you’ll generally find the poorest group in society, but poor people won’t help you to create a bubble. Let therefore their taxes subsidize people with real commitment to buying expansive property.  

4. No need to amortize: when people need to reserve place in their budget to actually amortize, it decreases the possibility to pay interest on an even higher loan. That is why people in Sweden do not really have to amortize their mortgage, and instead they pay monthly instalments that allow them to pay of their loan within about 85 to 125 years. By that time you’ll already have the housing bubble you’ve always dreamed of.

5. Scare tactics: even though you already have an housing market that’s on fire, what’s nicer than stoking up that bonfire? Tell people that in the near future new loan takers will have to actually amortize their mortgage within their own lifetime. Give them about a year. And make sure - now pay attention as this is SUPER IMPORTANT - that all new loans before this date do not have this new amortization requirement. Watch how people go crazy and try to buy new apartments, driving up prices. Then, postpone the implementation of this new policy when the original date comes near, and watch people go crazy again.

6. Don’t build too much: this is some basic demand and supply - if you have too much supply prices will go down, deflating your bubble. Now, let’s focus some more on demand!

7. Discourage renting 2: great! Since you implemented all the measures above, renting is now in many instances more expensive than buying. Next to a owner-occupant housing bubble, you’ll also get the opportunity to derail the rental sector. But there will still be some people in the rental sector who could afford buying an apartment and help drive prices up. That’s why the Swedish politician Jan Björklund came with a great idea: deregulate rental prices! This is a great tool to squeeze even more money out of the renters making them wonder if there maybe is a way they can buy something instead.

8. Free existing capital: saving won’t help you create a decent bubble. Why not demand that people may only lend up to 85% of a dwelling’s value. Of course people don’t have to save up the remaining 15%, they can just ask their parents to refinance their homes. That way you take away actual savings and let them help create your bubble.

9. Magic: if you’ve done it right, now it’s time to enjoy the ‘magic’. Every year housing prices will increase, which means that people who are in the system are able to sell their house and put in a bigger down payment, to take even more expensive mortgages. Just let the bubble inflate.

10. Kaboom: you’ll now might ask yourself, what happens when this system is saturated? what when interest rates go up, and new people can no longer access the market? That’s the beauty of bubble, eventually they’ll burst, and you’ll be able to enjoy the fireworks. Then, just start over from step one.


Written by Sascha Benes. Follow him on Twitter, Linkedin and .