The ESRB warns Sweden re vulnerabilities in the residential real estate sector
The European Systemic Risk Board (ESRB), the macroprudential body of the EU, today issued warnings to eight EU countries on vulnerabilities in their residential real estate sectors. One of these countries is Sweden. The main vulnerabilities in Sweden are considered to be the rapidly growing real estate prices that appear to be overvalued, and high and increasing indebtedness especially among some groups of households.
The ESRB notes that, beyond cyclical factors, there are also structural factors behind this development. Some of them are outside the direct control of authorities, such as changes in demographics, urbanisation and strong income growth. Other factors are within the control of authorities, such as tax regulation related to real estate and supply-side constraints (e.g. the strongly regulated rental market and the regulatory constraints in relation to the construction of new homes). The ESRB states that if the drivers behind the vulnerabilities are not otherwise addressed by structural reforms, macroprudential policy measures can be used to enhance the resilience of the financial system and households' balance sheets.
"It is excellent that the ERSB conducts this type of analysis. As regards the warning to Sweden, it is well in line with the Riksbank's view. We have stressed the need for a combination of measures, within several different policy areas. The risks in the Swedish residential real estate market have also attracted attention among several international organizations, and now from the ESRB as well, which is good", comments Riksbank Governor Stefan Ingves.
The ESRB would like to close real estate data gaps
Today the ESRB also publishes a recommendation on reducing the data gaps for residential and commercial real estate in EU countries. The recommendation is aimed at establishing a more harmonized framework for monitoring developments in real estate markets in the EU. It, therefore, specifies a common set of indicators that national macroprudential authorities are recommended to monitor.
ESRB report on macroprudential issues in a low interest environment
Low interest rates for a long period and structural changes in the EU financial system affect financial markets and the real economy. Today, the ESRB publishes a report on the risks that this may entail from a macroprudential perspective and possible measures to prevent and mitigate these risks.