A slump in housing construction in Sweden could cost the economy up to 1,000 billion crowns ($96 billion) by 2030, a report by the Stockholm Chamber of Commerce showed on Tuesday, underlining the risks to growth from a dysfunctional property sector.

Inflation and rising interest rates have exposed a deep fault line running through Sweden’s economy centred on real estate.

Attention has been focused on the commercial property market, but the biggest effect so far has been in housing construction.

Housing starts fell around 55 per cent in the first three quarters of 2023, according to the statistics office, pushing up bankruptcies in the construction sector, forcing firms to lay off workers and cutting into growth.

If the slump continues, worse may come.

“In our worst scenario, which is reminiscent of the crisis in the 1990s ... we risk an aggregated production loss of US96 billion over the period up to 2030,” said Andreas Hatzigeorgiou, CEO at the Stockholm Chamber of Commerce.

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Building investment accounts for around 10 per cent of GDP and Sweden likely dipped into recession in 2023. The economy could see little or no growth in 2024 either.

The longer-term effects are also concerning.

Sweden needs to build 67,000 new homes each year to keep up with a growing population while a lack of housing could impact the expansion of “green” industry in the far north, where companies like battery maker Northvolt and fossil-free steel firm H2 Green Steel are setting up, a recent government study warned.

“We think it is deeply problematic that we have a house building sector that is so sensitive to the business cycle and to rates,” Riksbank First Deputy Governor Anna Breman said.

While interest rates are expected to start coming down this year and the economy is stabilising, the number of housing starts is expected to drop below 20,000 in 2024 and could remain low for years to come.

“I don’t see any quick upturn,” Goran Linder, head of project development at housebuilder PEAB, said.

“The last two years, the cost of building a house has risen by 20 per cent ... at the same time, our income has fallen by 10 per cent. That combination is pretty significant.” REUTERS