How Have the Amortization Requirements Affected Housing Prices in Stockholm?

Abstract: The aim of this study was to investigate how the amortization requirements of 2016 and 2018 haveaffected the housing prices in Stockholm county, using an event-study approach and a regressionanalysis. Furthermore, the paper studies how the regulations have affected single-family housescompared to tenant-owned apartments, if the effect was different for tenant-owned apartments ofdifferent sizes and if existing housing compared to newly produced housing were affected differently.The reasoning behind the introduction of amortization requirements was to regulate and decreasegrowing household indebtedness that was making Swedish households vulnerable to changes in theoverall economy. The second requirement aimed to further regulate household indebtedness and wasexpected to lower housing prices, which it received criticism for. The report is limited to thedevelopment of house prices for single-family houses and tenant-owned apartments betweenDecember 2013 and February 2019.The primary findings of this report are that the amortization requirements have resulted in decreasedexpected returns. Consistent with previous literature, the introduction of macroprudential policiesreduced the price growth for existing tenant-owned apartments and decreased the housing prices ofsingle-family houses and newly produced homes. The amortization requirements accomplished theFinancial Supervisory Authority’s aim of reducing household indebtedness, but increased the averageloan-to-value ratios for households. Lastly, it has become increasingly difficult for younger householdsto finance their housing purchase due to increased monthly payments and thereby failing to pass theleft-to-live-on computations created by lenders. At the same time, the rental housing market remainslimited.