Housing – Engine for Swedish Segregation

Many Swedish immigrants are trapped in residential areas where social conditions are eroding from an already low level. Old planning mistakes, in combination with a market-driven housing policy and continued immigration in the last 25 years have created a challenging cocktail. A destructive trend is getting stronger.

Segregation is a word that most older Swedes associate with the US and perhaps South Africa, but not Sweden. In the last 15 years, this has changed. The word “utanförskapsområde, a socially vulnerable area, is one of the most politically loaded words in Swedish. It is also connected to the outbreak of increased gang criminality, which has placed the international spotlight on Sweden’s social problems.

Solving one Problem, Creating Another

Different socioeconomic- and ethnic groups living in separated areas are nothing new in Sweden. However, there has been an exceptional reinforcement of this development in the last decades. Micael Nilsson, an expert at Boverket, the National Board of Housing, Building and Planning, traces the roots of Swedish housing segregation to the well-intended housing program ”miljonprogrammet”: Under this program, approximately one million apartments were built between 1963-72. 

The goal was to eliminate housing shortages connected to the population growth in most Swedish cities. The “golden years” of post-war economic growth led to a booming Swedish industry in need of labour. As a result, strong internal migration took place with people moving from rural areas to the cities. Also, labour shortages were met by migrant workers from e.g. Finland and former Yugoslavia. However, the old housing stock needed renovation and was considered to be ill-suited for”modern life”. Also, rental regulations made the renovation of older dwellings unprofitable. 

The urban centres needed a large amount of affordable housing that had to be built quickly. ”To lower the costs per housing unit, the construction of the new apartments was industrialized and standardized and they were often located in the outskirts of cities, where land was cheaper and construction was not disturbed by other activities. The effect was that these new housing areas were physically separated from old residential areas”, says Micael Nilsson.

According to Nilsson, the plans for new areas were influenced by an old concept, which believed that social harmony was best attained by separating white-collar housing districts from the blue-collar ones. Furthermore, City planners were also influenced by international trends, such as the car-centered city, leading to separation of housing from the workplace and commercial areas. 

In the 1970s construction activities in Sweden changed. Very beneficial loan regulations, interest rates below the inflation rate and tax deductibility made detached houses attractive for the Swedish middle class. In many cases, mortgages were lower than the costs of rent. The result was the construction of new large areas with detached houses on the outskirts of the cities. These were also separated physically from the large apartment areas of the previous “miljonprogram”.  

As a result, large proportions of the middle class left the ”miljonprogram”-areas. Furthermore, the fact that the costs of mortgages were lower than the costs of rent for the millionprogram-apartments, the problem of increased vacancies arose. The apartment areas were almost exclusively owned by municipalities and a great deal of the vacant apartments were filled with socially vulnerable people, for example, long term unemployed, people with addiction problems and people with mental health problems. 

From Socio-Economic- to Ethnic Segregation and problematic integration 

The effect was socioeconomic segregation with people at the bottom end of the social ladder concentrated in these ”miljonprogram”-areas. In addition, Sweden allowed the settlement of a large number of refugees from different conflict areas in the world, like Chile and Palestine in the 1970s, Somalia, Iran, Iraq in the 1980s and from former Yugoslavia in the 1990s. An ethnic dimension to segregation developed, as many refugees were allotted to “miljonprogramm” areas.

A study from the early 1990s made by Byggforskningsrådet, The National Council of Building Research, identified several social problems related to increased ethnic segregation in Swedish housing areas, revealing a problematic state of integration of immigrants. Many immigrants lacked insight towards Swedish cultural norms, lacked interactivity with native Swedes and other more integrated groups and had weak connections to the labour market. The study warned about the risk of the development of parallel societies, gangs and organized crime - problems that top the headlines today.

The increased ethnic- and socioeconomic segregation lead, according to Micael Nilsson, to so-called ”white flight” from the affected areas. Just living in these areas became a social stigma from the perspective of the majority society.

Market-driven segregation

The economic crisis during the first half of the 1990s led to further drastic changes to many economic and social policies. The government and the state started to retreat from many areas in favour of ”market solutions”. 

These changes had profound implications for the Swedish housing market. The elimination of mortgage subsidies led to a sharp decline in the construction of new apartments. New governance rules for municipal housing companies required that their investment decisions were to be based purely on profitability. The conservatives in Sweden were influenced by Margret Thatcher’s notion of the ”ownership society”, resulting in the large scale sale of municipal housing, especially in more attractive areas. Most were sold as individually owned apartments, so-called ”Bostadsrätter”.

As a result, the construction of new dwellings was concentrated towards the upper end of the market. Hence, construction costs increased sharply and the requirement of the owner to cover all costs, including a market-based yield on the increased portion of equity, led the rent levels for new apartments to increase sharply. New housing became unaffordable for lower-income groups. 

The more market-based the housing market turned, with a constricted supply and sharply declining interest rates, the more extreme the value increases of the Swedish housing stock became. The development changed the perspective on housing from a more-or-less convenient accommodation to ”the investment of your life”. The development deepened socioeconomic segregation to further levels- with certain residential areas reserved for the ultra-rich and so on further down the socioeconomic ladder. The price hikes have been most extensive in major Swedish cities, especially in Stockholm. More importantly, market-driven segregation is affecting housing areas beyond the “miljonprogramm” neighbourhoods.

There have been attempts to desegregate the more affluent areas by building new rental apartments, but the attempts have been met with considerable resistance. Opposition to these measures can be seen from a personal economic perspective as rational. Under the guise of market-driven housing policies property prices are also heavily influenced by the social capital in the area. High prices lead buyers to become more risk-averse. Hence, they fear that the attractiveness of their investments could suffer from people stemming from lower socioeconomic groups than themselves, increased traffic congestion from new property developments or a worsening of school performance affecting their children’s prospects. 

Segregation and the rise of the far-right

As a result of these developments in the Swedish housing market, rental apartments represent a shrinking share of the housing stock, even though they must accommodate a larger part of the population. Immigrants, as well as other members of lower-income groups, have had no other choice than to move to the more available “miljonprogramm” dwellings in the outskirts of the cities. In these areas, they can avail of informal social networks through support from friends and relatives with a common cultural background. From an immigrant’s perspective in a foreign country, this is a rational decision, as invariably they hope to find employment via these networks. However, on an aggregated level this has created a destructive cocktail of problems essentially weakening their prospects for integration.

These problems are now at the heart of the current Swedish political debate. However, the political competition to find solutions for segregation and continued gang-related violence in the cities so far has been on the lines of law-and-order policies. The proposals on offer in the current debate range from increased funding of police with increased powers, sending in the military as well as harsher penalties. No serious evaluation of the socio-economic problems in the Swedish housing markets let alone the debate of possible solutions has taken place. It comes as no surprise that within this heated debate the immigration hostile Sweden Democrats are recording high approval rates in the most recent polls.

Author:

Per Lindvall is a Swedish economist who works as a freelance journalist, covering macroeconomic and business topics. He publishes his analyses and comments regularly in Realtid, Göteborgs-Posten, Affärsvärlden, Arbetsvärlden Dala-Demokraten. Per has previously worked as a rating analyst at Standard & Poor´s and has a degree from Stockholm School of Economics.