The large increase in household debt over the past fifteen years coincides to a large degree with the rise in housing prices (see Figure 7). One important reason for this is that the supply of housing has been small in relation to demand. After the crisis in the 1990s, housing construction in Sweden has been remarkably low, lower than in most comparable countries. The reasons are not entirely clear, but there are a number of explanations that are usually given, such as high construction costs, demanding regulations and regulated rents. I do not  11  Jeremy Stein at the Federal Reserve’s Board of Governors has expressed it as the advantage of monetary policy being that it “gets in all of the cracks” (Stein, 2013, p. 17). The Riksbank has also raised this argument in various contexts, see for instance, Ingves (2010) and Nyberg (2011). 12  In a study of 18 OECD countries over the period 1921–2011, Bordo and Landon-Lane (2013) show that expansionary monetary policy has a significant effect on asset prices, particularly during periods when asset prices have increased rapidly, followed by a later severe downward adjustment. Maddaloni and Peydró (2013) find in a study of data for the euro area that banks ease their credit conditions during periods with low policy rates, even when the borrowers’ credit risk is held constant. 13  See, for example, Blanchard, Dell’Ariccia and Mauro (2013), Borio (2013), Carney (2013), Smets (2013) and Stein (2013).
What macroprudential policy can do, with the possible support of monetary policy, is to bridge over the problems – try to ensure that the situation does not worsen while waiting for the supply side of the housing market to begin functioning better. To make a slightly drastic comparison, one might say that what macroprudential policy can do is to give first aid on site while awaiting the ambulance. A first aid effort may be necessary to save the patient’s life, but without continued nursing it is still uncertain whether the patient will survive. Low housing construction is of course one of the “fundamentals” explaining why prices have increased so much. But this is no real comfort. A large part of the problem is, as I mentioned earlier, that we appear over the past couple of decades to have been in a process where housing prices and debt only slow down slightly during economic downswings and then continue upwards again when times improve. This makes households – and thus the economy as a whole – gradually more vulnerable, and this is simply not sustainable in the long run. Several policy areas must collaborate To change course, or reprogram the system, I believe a lot of helping hands are needed. One major challenge is to take measures in a way that avoids as far as possible a rapid and dramatic adjustment of debt and housing prices.