Peter Marklund

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Sun May 04, 2003

Stockholm Growth Hampered by Politics

In Dagens Nyheter I read yesterday how last year, the number of people moving out of Stockholm exceeded the number of people moving in. This made for the lowest population increase since 1988.

Magnus Henreksson at the Stockholm Business School points out how the salaries in the Stockholm region have not been keeping up with the cost of living so that the prospect of moving out is starting to offer compelling economical advantages. Of course, the unions are preaching "Lika lön för lika arbete" so it may not be considered fair to pay a nurse in Stockholm considerably higher salary than a colleague somewhere else (the example in the article being Bollnäs).

There is a redistribution of income from regions with high levels of occupation to regions with low levels, a political program known as "regionalpolitiken". According to a report from Handelskammaren in Stockholm 40% of the direct tax income of the swedish state is from Stockholm whereas the share of the income generated there is only 31%. Stockholm gets 17% of the road budget eventhough 30% of the traffic is there. It gets 10% of the railroad budget but has 20% of the population and 70% of public transport traveling. The income from the housing or property tax (fastighetsskatten) in the Stockholm area has gone up by 10 billion (yearly?) between 1995 and 2000.

There is a project called Botniabanan that aims to build a new railroad track along the coast in the north of Sweden. Magnus Henreksson reminds us that this is part of Regionalpolitiken and that it seems to make little economical sense. He says:

"Det skulle vara billigare för staten att istället betala taxi för alla som ska resa den sträckan. Samtidigt finns inga pengar för en utbyggd tågtrafik i Stockholm, där en sådan investering verkligen skulle löna sig"

In Sweden politicians have regulated the apartment rental market so that for a long time it has in practice been impossible to legally rent an apartment in Stockholm. Of course, people are acutely aware of this problem, after all, housing is almost as important to people as food on the table. Isn't it surprising then that the pressure for change appears to be so low? What percentage of people actually realize that the problem is politically created and that a known solution exists? I can think of no more deterring example of the damage caused by making prices (in this case rents) exempt from supply and demand than the apartment disaster in Stockholm.

While the population of Stockholm has been growing rapidly over the last years the building of new apartments and houses has been disproportionately low. This means that in a situation of housing shortage, demand has continued to grow much faster than supply. How can this happen? Why won't supply and demand meet? Is it because building is too expensive (high taxes and low competition), or because politicians restrict the setting up of new houses in central Stockholm, or is it because building rental apartments is not economically feasible? Probably a combination of all of those and a host of other reasons that haven't occured to me yet. My point, once again, is that the problem is political.