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2007 OECD Economic Surveys: Sweden 2007

image of OECD Economic Surveys: Sweden 2007

In this 2007 edition of OECD's periodic survey of Sweden's economy, OECD finds strong macroeconomic performance and  impressive productivity growth coupled with persistently low inflation.  The expansion is set to continue.   Among the challenges addressed are making employment inclusive for both immigrants and natives, and better allocation in the housing market.

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The housing market – better allocation via less regulation

While several sectors in the economy have been deregulated, the Swedish housing market remains distorted, hindering an optimal matching of supply and demand. In the rental market the rent setting framework with its focus on cost-based rents in the public sector prevents a price response, leading to long queues in some regions and vacancies in others. Many Swedes that would have preferred otherwise are driven into the owner-occupied segment, where prices are increasing strongly, and rising above an estimated fundamental value. The supply of new dwellings is made more difficult by an uncompetitive construction industry, coupled with cumbersome planning regulations and few incentives for municipalities to issue more land. On the fiscal side, real estate taxes are below neutral levels, implying an indirect subsidy to housing. This chapter presents a critical review of the recent steps to abolish real estate taxes and also proposes comprehensive reform of regulations in the rental housing sector.

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