Sweden: The Property Market and Monetary Policy Post author By Philip Lane Post date February 9, 2010 As reported in the FT Money Supply Blog, the Riksbank has appointed a commission of inquiry to examine risks in the Swedish property market and the implications for Swedish monetary policy: you can read the details here. Categories In Economics Tags Swedish monetary policy 12 Comments on Sweden: The Property Market and Monetary Policy ← Honohan on the Economy, Banks and the Job Market → Imbalances within the Euro Area 12 replies on “Sweden: The Property Market and Monetary Policy” Sounds very proactive. A good example to others. @Joseph er .. ‘proactive’ ……… dats a new one on me! Has it ever been tried around here since TK Whitaker’s time? Inactive, reactive, or proactive periods of policy formation: Discuss. @George Lee The one thing that makes the Irish establishment even slightly change is having their behaviour revealed to the public. If you really want to force the Irish establishment to change then forcing the FG wing of it to change is imperative, as they will be in power after the next election. Reveal all – every detail. Name names – every one. Shame them. Shame them publicly – as publicly as you can. The church is dead because people failed to do this. FF may soon be dead too. If you want to save FG – and the country – reveal the complete, blunt truth. It’s the ONLY thing that will EVER make them change. @David O’Donnell Huh? ‘Joseph Nothing personal Joseph – just that ‘proactive policy’ has a positive ring to it ……. sounds like something worth doing .. hence it caught my attention. .. yet the macro-boys inform us that when we shuda been counter-cyclical we were pro-cyclical and when we were countercyclical we shudda been procyclical …… and in between we were inactive – ‘whatever you do, do nuttin’ appears to be dominant – and only become reactive when Big Piles of Sh**te become visible …….. and whatever the policy, or lack of policy, the only technique that one can reasonably rely on is ‘spin, SPIN, SPIN’ ………… whatever the ‘fiscal stance’ projected … @David O’DonnelL I was talking about Sweden when I used the word ‘proactive’ ….. not those muppets in the Dail. Thanks for the linking the document Philip. Philip This is a very welcome development. In my view the relationship between housing markets and the wider macro-economy is not well understood. Also, it appears to me that many economists think in terms of a model that tends towards equilibrium and this model is not good at handling the housing market where the supply cannot be withdrawn and where demand comes from both investors and occupiers. Government housing policy and the policies of lending institutions around providing finance for purchase to both investors and owner occupiers need to be examined here also. @ Tom Dunne, “Also, it appears to me that many economists think in terms of a model that tends towards equilibrium and this model is not good at handling the housing market where the supply cannot be withdrawn and where demand comes from both investors and occupiers.” Isn’t that the pure and honest truth. I have previously admitted here at Irish Economy blog, that discussing this and other economic matters, related to how we build and accomodate communities in Ireland, is perhaps too difficult for me to speak about, through this electronic medium. I guess, my being so close to this process of producing and designing the product, for a length of time, makes it so. “Government housing policy and the policies of lending institutions around providing finance for purchase to both investors and owner occupiers need to be examined here also.” Indeed. I think we have to develop some kinds of skills to execute the complete model – both financial and physical of building and deploying the product. Rather than waiting for the moment of the rush-to-build. My observation has been, the construction industry cannot wait around for policy makers and the powers that be, to develop these models, when the economic upsurge happens. They tend to grab whatever model and means of production is available then. Then the industry goes into a period of non-production, virtually a hybernation for several years. Many of those who got experience in the last building roll out, aren’t involved in the next. It operates on a strange cycle, housing production, and doesn’t evolve with the same ‘continuous improvement’ as we see in other industries. The only analog I can think of, is those history documentaries of the second world war. You see at the beginning of the war, tank equipment, which share more in common with peace time, agricultural tractor production, and actual military style kit. But by the end of the war, the standard of equipment coming out, and the ease of its production, is brought to a much finer art. It is interesting to note, that while the US side employed a lot of economic control of their means of production. The Axis power in Europe, didn’t take advantage of that. I don’t know, not alone do we not know the general standards of building provided during the Celtic Tiger, we cannot even count up the exact no. of units produced, and where etc. BOH. The report might be interesting, however the main point should be about that it is possible to write the report in Sweden as the data is available there. Using the data available in Sweden it is known that in some areas properties will be worth less the cost of building them -> Those properties will not be built. However, Ireland has chosen to prioritise data privacy over the possible benefits investors and the general public. Maybe some developments in Ireland would not have come into being if better data had been available when making the investment decision. Maybe this would have lead to less losses for developers and by extension less losses for banks by extension less losses for the Irish state by extension less losses for the general public in Ireland. Certain loss of privacy weighed against uncertain & uneven gain in market efficiency. I replied here to Karl Whelan, to point out where the analogy of war economics and house building actually breaks down. http://www.irisheconomy.ie/index.php/2010/02/12/mortgage-repayment-burdens/#comment-35859 BOH. Was thinking a bit more about this & while it looks good I think there is a risk that it might not give any useful information: The biggest risk for bubbles is probably where the prices has increased the most. In Sweden that is in the capital, Stockholm. In Stockholm (& other attractive places to live in Sweden) the rents are being held down by a rent control scheme (bad idea). Since the rents are being held down below market price, a black market has evolved where trades are made illegally in rental contracts. The black market is completely unregulated and there are (to my knowledge) no reliable statistics about the black market. Will the report look for bubbles where there is transparency & regulation and therefore easier to collect data or will it look for bubbles where reliable information is harder to come by and (by coincidence?) bubbles are more likely? The most interesting part of this report will be to see what assumptions have been made about the areas of the economy that can’t be measured. I believe the quality of assumptions will decided the quality of the report. Comments are closed.