The Swedish housing shortage in 2003: does it result from competition problems in the industry or is Sweden's housing policy to blame?

Abstract: In this master thesis it is investigated where the housing shortage that Sweden faces in 2003 comes from. Starting from two alternative scenarios, a scapegoat is looked for: either the industry is responsible for lowering the supply of housing by increasing the cost of dwellings through illegal cartel agreements, or the state is to be blamed for distorting market forces through an inadequate housing policy. The latter comprises several possibilities: for example, strengthening the position of the domestic market players by discriminatory legislation or granting unlawful state aid to remedy malfunctions of the system. A combination of both was found in the 2002 Municipal Housing Company rescue plan and hence deserves a lot of attention in the final chapter. Openness of the Swedish construction industry, as an important aspect of competition, and problems related to cross-border investments in construction, as a general characteristic of the industry, are not focused on but were nevertheless included for the entrepreneur-reader. In parts one and two a quantitative and qualitative assessment of construction as part of the Swedish business environment is done. A PEST-analysis allows familiarization with the topic, where after Porter's model is the basis for assessing market concentration, supplemented with a legal perspective on the local nature of construction in a holistic view. The Porter model of five competitive forces was chosen to highlight the industry rivalry (concentration at the top) in order to evaluate whether there is a competition problem. Since concentration is a facilitating force for the creation of cartels, it is assessed how big the likelihood of cartelization in the Swedish construction industry is by benchmarking with previous cartel cases in the Dutch and Norwegian market, but also by linking previous participation of Swedish companies in building material cartels to the construction market itself (construction in a strict sense). Finally, a hypothetical and preliminary conclusion on cartel infringements by Swedish construction companies is weighed against a plausible bad national housing policy (part three). The legal analysis in this paper includes potential infringements of Articles 81 & 82 EC Treaty on the one hand, and possible infringements of European regulations on state aid (Art. 87 – 89 EC) on the other hand. The first are fairly presumptive in nature whereas the conclusions for the latter could be made more explicit. The analysis of the Swedish investment aid program (of two who are currently under scrutiny) for support to financially weak public housing companies is effectuated before the European Commission made its final decision public. The guiding question throughout the paper is which major forces created the Swedish housing shortage in the beginning of the 21st century: the market actors themselves, the government or an interaction of both the industry and the State.