The Dynamics of Swedish House Prices in the 20th and 21st Century

Abstract: Using data spanning from 1910 to 2020, house price dynamics of Stockholm and Gothenburg are found to be significantly affected by income, household debt, interest rates, construction costs and immigration. Real house prices in Stockholm and Gothenburg exhibit debt elasticities of 1.34 and 1.12, noticeably greater than their respective income elasticities of 0.24 and 0.39. Real house prices in both cities take around 10 years to adjust towards equilibrium, which is inherently more sluggish than for other industrialized countries found in the literature. Between 1910 to 1980, house price cycles have driven credit cycles, which have since then become mutually reinforcing in Gothenburg and exclusively running from real debt to real house prices in Stockholm.