The hope is that monetary policy and the Riksbank’s arguments may contribute to reducing the risk of an overly rapid and far-reaching build-up of debt, and thereby also reduce the risk of a more abrupt adjustment of household indebtedness further ahead. It has sometimes been claimed that these considerations have meant that the Riksbank has given less priority to the inflation target and begun to regard house prices and household borrowing as target variables. This is not the case. The purpose of taking into account household indebtedness and house prices is to safeguard the inflation target and a stable development in the real economy, also in the longer term. These considerations could and should, in my opinion, be accommodated within the scope of the flexible inflation-targeting policy the Riksbank conducts, like many other central banks. The Riksbank is far from the only central bank to make this type of consideration. Household indebtedness and house prices have increased at an even faster rate in other countries, as I mentioned earlier. However, I consider that the question of house prices and household indebtedness has been given much more attention in the monetary policy debate than it actually deserves, considering the significance this question has for monetary policy decisions. In the media the interest rate increases have sometimes been linked directly to developments in the housing market. This is an incorrect picture.
Prices thus do not appear to have been driven by fundamental factors such as rents and vacancies, but instead by investors lowering their rate of return requirement. The size of this requirement depends  BIS Review 105/2006  1  partly on long-term interest rates, but also on how much risk investors are willing to take, what risk premium they require. As long-term interest rates have not fallen - they have more probably risen during the period, this indicates that falling risk premiums have pushed up prices. While this in itself is no great surprise – risk premiums on all kinds of high risk assets around the world have fallen in recent years, and it would have been surprising if Swedish commercial property had been an exception from this trend – there is reason to question whether the current low risk premiums are reasonable. If they were to be adjusted upwards to the earlier more normal levels, this would create downward pressure on commercial property prices. The Riksbank thus has reason to continue closely following developments in this field. Nevertheless, earnings and payment capacity in the property sector are good. Unlike the early 1990s, the property companies have on the whole sufficient capital to be able to manage a reasonable fall in property prices. My assessment is therefore that the commercial property sector does not constitute a threat to the stability of the financial system at present. The housing market Let me now move on to the housing market.