What broke Sweden? Real estate bust exposes big divide

Could you share a few places at the top of your list? As you yourself pointed out, it looks like the same story is playing out everywhere one looks, especially in the West.

Given the current situation, the more I think about it, the more I conclude that going fully remote from a low-COL location may be the better answer. Unfortunately I think this complicates things for founders to raise.

Also, this makes me think how utterly unprepared Germany is to receive all those immigrants needed to keep the economy working.

Best of luck with your plans.

Well, rising cost of living is a reality everywhere (it’s called inflation). But Munich is really extreme. You might want to consider moving to Eastern Germany. If you pursue an academic career, you might want to watch for positions in Magdeburg, Greifswald or Leipzig.

> How the hell are we ever supposed to build up some savings

ETFs (exchange traded funds i.e. index funds) give you better yield than just paying into a savings account. You also might want to invest some percent in more risky positions like BTC and ETH (10%) bc now is a good time to do that.

Also give it a couple of more months. Housing price increases are already decelerating and start to decline in some areas. The last 10 years were exceptional in low interest rates and money printing in the EUR zone.

If you can avoid it, don’t own a car — it’s always a money drain. :)

Moving doesn’t necessarily help much. That is because usually house prices are directly driven by how much people can loan on a mortgage, which is directly driven by earnings. Cheaper housing often means lower earnings potential. Conversely, saving in a high earning country can mean you have a deposit for a house in a cheaper country.

Edit: Counterintuitively, high interest rates can help middle class people that don’t have homes. House prices drop, so you need less deposit. And usually you can work harder for a few years to nail principal (I know people that bought in the 80s - one friend had an interest rate of 28%).

Some remote workers can earn in a wealthy country and live in a cheaper country.

Meanwhile, watch out for the most unaffordable cities: https://www.visualcapitalist.com/least-affordable-cities-to-... https://www.theguardian.com/cities/gallery/2017/jan/23/10-mo... Canada, New Zealand, and Australia have some batshit insane unaffordable real estate (stop whinging about SF - 9th place on Guardian list!). As a New Zealander I would struggle to recommend moving here without already having a nest egg - although if you are willing to move to rural areas you might find something cheap (but usually not find a job too - house prices are driven by median incomes in most places, sometimes driven by investors, wealthy immigration, or movement of people such as retirees) https://www.trademe.co.nz/a/property/residential/sale

> We are already looking to move to other places and created a university-wide google sheet where we compare different countries and cities around the world for those kinds of categories

It seems like if you want to live anywhere that's desirable you have to pay an arm and a leg for rent, no matter what country you're in.

Low interest rates and endless money is the main driver of inequality. Housing was just one manifestation of the root cause.

The logical step, when individuals cannot afford their own rent, companies that need workers will be providing housing to their workers. And they will be able to evict them whenever they feel like it.

Then we will finally return to feudalism in all but name- you will have a lord, live on his land , and he will be able to control your life far beyond what a job normally does.

I doubt that "every" city in Germany has this problem, but I believe you that all of the ones that I could name as a non-German do.

The 50th percentile Brit can't afford to live in London. Nottingham, well that's easy.

It's the same everywhere.

It's a way of transferring money from younger adults to older adults, and older adults vote.

It's basically an intergenerational pyramid scheme where each generation pays to the previous one, and each time they pay more. Of course, like any pyramid scheme, you can only keep it up so long.

You're trying to live in one of the objectively best parts of Germany by a lot of stats and thus you're competing with a lot of folks.

I'm honestly sick of this whining about rent in top-tier areas. Living there is a luxury, given the major move to cities and scarcity, driven by insane regulations and basic logic.

There are plenty of cities in Germany with very cheap rent, where apartment buildings get torn down because they're vacant.

But of course the entitlement seems stronger than the willingness to compromise.

Have hope. Things are changing as I see it.

Fundamentally, I believe that we have seen a multi-decade boom because property prices are closely linked with interest rates. People borrow according to their capacity to service the loan. For most home buyers affordability is measured by monthly repayments, not the ticket price.

As prices rose, capital gains became a more significant consideration. This meant that some people who would not have purchased investment properties did so. They would not have done this if they were only looking at the income earning potential of the asset. Rental yields have been getting much worse over time. People stopped investing for yield and started to speculate - doing well with favourable tax regulations and the leverage opportunities that mortgages provide.

In the past, if you owned a second home (holiday home, convenient apartment in the city, etc) it would cost you money if its value didn't appreciate at a quick enough rate. For decades now that hasn't been the case - property prices have been appreciating so quickly that owning a property has been a good financial bet even if it hasn't been earning any income. It was no longer the preserve of those wealthy enough to maintain more than one property just for the lifestyle it allows. Naturally this means that the number of people that have been doing this has increased considerably.

There is no doubt in my mind that the proportion of underutilised properties has increased in correlation with the rise in property values and the steady decline in interest rates. For many, this is hard to accept as it doesn't fit with the naive assumption that prices have been rising because there is somehow more demand for homes. What they forget to factor in is that there is a difference between demand for homes and demand for investment opportunities. To put it another way, a speculative boom creates artificial demand.

A few points to back this up:

- In the UK, the proportion of underutilised properties is highest in areas with a higher average property value.

- In Melbourne, Australia, it has been shown (through examining water usage) that the proportion of empty properties is highest in areas that have experienced the highest capital gains.

- In NZ, the ratio of households to dwellings has decreased since the mid-90s (the start of NZ's boom).

All of this suggests that the rise in prices is not due to a shortage of dwellings for people to live in. It is a shortage of available dwellings.

The wheels came flying off NZ's property market at the start of 2022. This was caused by rising interest rates. Where I live, this resulted in a flood of properties getting listed for sale and an increase in available rentals at lower rents. Where did those extra rentals come from?

Another factor in all of this is the rise in short term rentals (AirBnB, etc). AirBnB effectively allows property investors to take properties out of the housing stock and still collect rent. Many cities around the world (especially major European tourist destinations) suffer from this. Ideally it would be regulated much more tightly in future, but I think there is a small chance that that may not be necessary. Prices are now so high in many places, and servicing loans so costly, that even the higher rents that can be achieved in this market may not be enough to make yields worthwhile. A lot of these properties may make their way back to the regular housing stock as investors are forced to sell up.

So, the big question in all of this is, we know what happens when interest rates drop and property prices appreciate - what happens when interest rates rise and capital gains are off the table (or negative gains become the norm)?

never had an 8% increase tho, that’s rough. it was a different world in 2005 for sure

Yet many-many people come to Germany every year to join tech companies.

That's nonsense. Larger Munich is the most expensive place to live in Germany (except for the island of Sylt), and has been for many years, but is still nowhere near London, NYC, or SF. In contrast, you can purchase entire houses in abandoned (but well connected) places in east Germany for as little as 10k EUR.

No, Munich is an outlier. You generally can find apartments under 10€/m² without too much trouble, at least in mid-sized cities. However, it’s true that rents have been rising significantly over the past decade or so.

You are competing with many people from all parts of the EU and, to an extent, the world for the same limited resource. Someone who built their startup and banked on it already came to Germany to work and live there because it is a very comfortable place to live. Refugees without any money at all are willing to go to Germany instead of Greece or Italy, not to mention Bulgaria or Hungary.

I am trying to be a devil's advocate now, but landlords are interested in getting paid as much as possible; it is Economy 101, rational agent behavior. Otherwise, it would be a charity, not a business.

I think moving away, or at least moving your business away, is rational behavior on your side. Take a look at said Bulgaria: Sofia is a dull place compared even to smaller German cities. Still, they have 10% flat taxes for companies and individuals, and for 1000 EUR, you will have a 150 sq.m. two-level apart in the historical city center with 3 bedrooms, a separate dining room, and a large study with a real fireplace. They have a subway to the airport and several budget airlines flying from there to any part of the EU. Source: several people from the company I work for are living there.

But, the fact that, at $110k a year, a two bedroom (yet small) place was a huge stress. And that was not even in not one of top 3 most expensive cities in the bay area, which should say something.

I'm extremely grateful that I can live close to my parents, and will be able to help take care of them as they age.

Something is broken when it's a financial pressure for someone in the top 10% of income to live within an hour drive of where they want to be. And, that's kind of a luxury, tbh. I have extreme sympathy for the working class. There's something fundamentally broken with our housing policy.

This is a really toxic situation because it seems that for many young people, objectively speaking, career matters quite little. You can be unambitious, get a mediocre job, need your parents' help to survive and expect most of your wealth to eventually come from inheritance... or you can be ambitious and hard-working, get a better job, but still need your parents' help to survive (only somewhat less) and still expect most of your wealth to eventually come from inheritance.

It's a sad situation, and I say this as someone who is not that young anymore and owns an apartment, so it's not personal whining but genuine worry about where society is heading.

You're not. The system is working as intended, just not for us.

Remote work was a huge boon, because our family income is independent on our location and housing costs in Ostrava are literally half the costs in Prague. We have a nice newly built house not far from public transport (6 tram lines stop on a major intersection in a 15-minute walking distance), with a garden, pretty calm and several minutes of walking from two huge supermarkets that are open till 9 and 10 pm, respectively. Even a small apartment at the outskirts Prague (two rooms) would be about as expensive.

But it came at a cost, yes. The restaurant scene is a shadow of Prague's, and a lot of personal connections had to be weakened, if not severed.

People seem to be forgetting that everything is a tradeoff. If a city like Munich or Prague is highly attractive for students, workers and connosieurs of urban life, there will be a huge demand for housing there, and few regions in the developed world have escaped the enormous NIMBYfication of construction regulations, so the supply will be lacking.

Or you can have a really nice place for living, but not in a major and growing urban area.

What about Dresden or Meissen? Nowhere near as expensive as Munich, but still urban enough to have some doctors and other opportunities.

Yes, you will have a lot more AfD voters around, but everything is a trade-off. Living in a mostly B90/Grüne-voting neighbourhood may be the most costly privilege in entire Germany, and is it really worth the added cost? I surely wouldn't like to be held hostage to my neighbour's political preferences.

Many things typically seen as good add to the cost of housing.

Building is difficult because of zoning restrictions.

Building is expensive because of labor and zoning and construction and accessibility and many other regulations.

Renting also is risky for a landlord because of eviction protection laws.

And so forth. Housing doesn’t need to be so expensive and scarce. We made it so. We have far better technology than in the past, we can build better, safer, faster, cheaper. Except we can’t.

The idea is, you pay so much rent, you never will have enough money to buy something. So you have to spend all your money the whole life just for rent and still own enything when you are old.

Hold up. I don’t think the people of San Francisco grew weary of increasing rents and decided to turn to a life of crime.

Most of the “trouble makers” in the Bay Area are recent arrivals to the area and come because of poor policing and the government is generally more tolerant of them.

1) the immigration rate is so high it isn't enough to keep up

2) the house values in areas that dont build in enough housing have skyrocketed, and smart homeowners in those areas have decided to sell and move to places with lower house prices and purchase more than one, which of course rockets the price even in the places that do build a lot. So even in provinces where lots of housing is built, immigration from other countries and other provinces blows up the housing prices anyways.

3) The government doesn't want to do anything about it because immigration is how they're keeping down wages, and since housing has become so much of the GDP they're terrified of what it would mean for the economy if there was a price crash anyways, so they don't look at policies that would fight the housing price explosion in fear of what the economy will look like if they do.

It's always the same story. Can't we just make the economy more fair by saying that the wealth gap must at least be smaller than some value or else the rich will pay (taxes) to make it so?

It sounds like the same story being repeated all over the world. There was someone on comments here on another thread talking about how this is a problem in Ireland now as well. It's not just SF in the US, it's all over the place. A friend recently told me about his search for a place to rent in rural western Washington and they said it was just impossible to find even a one bedroom place under $1800/mo even in this rural area where incomes are much lower than in the urban centers like Seattle and Tacoma.

I mean, what's actually happening is that the rich get richer and the poor also get richer but at a slower rate

> growing wealth inequality leads to all sorts of other dysfunction including increased crime

No, we have significantly higher inequality than the 1990s and significantly lower crime. So the opposite of what you said.

It's not so bad in the country side, but there are very few jobs there. I have some friends (a couple with 1 kid) who moved to distant suburbs of Oslo for more affordable housing. But the long commutes destroyed their quality of life and put a strain on their marriage. They are now moving back to a tiny, very expensive rental in Oslo. Its a definitive step down from when they left.

We have outgrown our apartment -- the kids are getting bigger. So, we really need a 4 bedroom place (ideally 5 so we could have an office, but we'd settle for 4 and a desk in the living room). There are no apartments - which would be a lot more affordable than a house - that large here. The max bedroom count in apartments here that I have ever seen is 3, which we already have.

So we are planning to buy a 2-unit house ("tomannsbolig") with another couple with kids. It's the only way we can afford something with enough bedrooms, without a large inheritance or something like that. None of us have anything like that coming. We have 4 "good," stable jobs (programmers, researchers etc). Even with other couple in the mix, it feels impossible to find something in the same school district. We've been looking for over a year.

So, we are thinking about looking for a third friend or couple, since there are a few houses that have 3 units. It's just tricky to find someone you feel comfortable enough with to ask that. But we hope that 5-6 incomes will be enough in this market.

*Before anyone tells me my kids can keep sharing bedrooms, try telling that to them! The increasing need for privacy and lack of space is becoming a real problem here.

But hey, at least the cops won't arrest me for openly smoking crack on the sidewalk, so that'll help me deal with the stress of trying to be a high performer.

Equality of outcomes: everyone is equally poor.

Why are you not moving to another country is the question.

Being able to live in the most desirable areas is based on relative wealth. If there is a lot of old money, it's harder to make it to the top in a single generation.

The usual tools for leveling the playing field are wealth tax and inheritance tax. I'm under the impression that Sweden abolished both a couple of decades ago.

> I'm in the highest percentiles of income in Sweden

Which one is it then? 80th? 90th? 99th? 99.5th?

> It's basically impossible for me to afford a house / apartment for my family in the best neighborhoods.

Which are the "best neighborhoods" in your mind? How many houses/apartments are there in those "best" neighborhoods?

Do you see why these numbers matter if you're trying to learn from this situation rather than just complain and pretend nothing is finite?

If you work remotely, as software developers can, you don't have to give up salary either.

Why would you expect to be able to buy a family house/apartment in the best neighberhoods just because you are in the top income percentile? Wealth percentile matters.

I'm also in the top income percentile in Sweden, and I can basically buy 99.9% of all houses/apartments in Sweden, which I think should be enough for most people..

How is that possible? I am an immigrant who moved to Sweden at age 22, and I bought an apartment in Malmo after 2 years of savings in the center of Malmo. I wasn't in the top percentile, didn't get help from anyone else. It was entirely my own savings within that 2 years.

Maybe you shouldn't aim for center of Stockholm for your first home purchase...

Status symbol? Who cares. For the investment? It doesn't seem like you can afford it, nor need it. Just buy someplace you can afford and make a nice home for your family.

If there is a genuine reason why that neighborhood is the best for you and yours, then ofcourse that is a different matter.

What a surprise. The government got your taxes AND screwed you with inflation over time.

Then COVID happened and they had to print more, postponing and aggravating the crisis.

Now it's time to pay and nobody will take the blame.

When are people going to rebel?

There are other factors boosting real estate prices -- more people desiring to live alone, ease of renting an unused property via Airbnb, people living longer, massive wealth generation via stock markets -- but a low-rate environment offers existing wealth much more leverage to grow.

Or it's more nuanced than that and there are actual benefits (as well as downsides) to having your own currency. It's like Covid. When it went well everybody was cheering and saying how we Swedes were geniuses. When it flipped, we were suckers. Maybe, it's more complex and actually quite a lot about luck and other factors.

Another example. Few have historically thought ill of Sweden's long (now gone) tradition of being neutral. One thing that makes it very difficult to be neutral is having a currency that you only control a few percent of.

Keeping a limited supply artificially price capped through regulations, sounds good at first, and will most likely be popular with clueless voters, but it will lead to shortages down the road and only the lucky few with money or connections will be able to afford.

We had that in communism, except ironically, not with housing but with food and goods. Now the west has the opposite problem, everyone has plenty of food and iPhones, but no housing. Have Swedes never learned about this and the functioning of supply/demand in their excellent school system?

Thankfully me and my girlfriend can afford and we're therefore planning to buy and lose our contract, but to be honest it probably going to go to someone who needs it. Because owning your own place, being able to modify it to your liking and having people that live there take care for it just makes it much better to own instead (in my opinion).

In italy 2nd hand rent is illegal… You just need that imo

It’s completely bonkers…

Which leads me to this crazy idea that what if the problem is instead a… lack of total amount of housing? Sweden is incredibly slow, expensive and bureaucratic to build new housing in, yet we’re urbanizing just as much as anyone else. To me, the government should have a clear policy goal of having housing supply keep up with population growth, at the very least. Now, I care less about HOW (everyone can argue about that until eternity) and more about just ensuring it happens, and not lagging behind decades. If politicians drag their feet, it should automatically switch over to dropping all non-essential regulations (that would put a blowtorch to their asses).

In either case, I’m not in Sweden atm and I don’t feel particularly hyped about the coerced gambling I’d have to participate in if I were to settle there again permanently. It’s a shame, because it really destroys our ability to attract international talent in the startup world and so on.

Growing divide is universal and pending some tectonic changes in the way our society operates there is no coming back.

I'm not in Sweden but why are we always pointing the finger at the poor immigrants? Do you think there are no native Swedes being fucked by this real estate market?

Granted, having an open borders migration policy is not a good idea when you have a housing shortage. If you're struggling to provide for the locals, then the newcomers will have it even worse and won't like it, leading to more inequality, social divide, unrest and increased crime.

But blaming immigrants is always a cheap shot politicians take to blame the demographic without voting rights for the problems they themselves are responsible for. "It's not us who screwed you over with inflation and housing while taking your taxes, it's the immigrants who took your job and house".

Oddly enough, profitability of Swedish banks has been increasing for the last 14 years: https://www.macrotrends.net/countries/SWE/sweden/net-migrati....

Maybe you can come up with an argument actually grounded in reality, rather than the same old BS "oh it's the poor".

You could look at countries with higher rates of immigration (say my own country New Zealand at 30% immigrants, compared against Sweden with 20%, although NZ immigrants are often middle-class from culturally compatible English countries). Switzerland has 30% immigrants. https://wikipedia.org/wiki/List_of_sovereign_states_and_depe...

You can sometimes find good articles with facts that help define the point you are trying to make.

This isn't what's happening. Any politician that promised to lower house prices would be demolished by middle class people who

a) think that additional wealth from rising house prices is their just reward for being wealthy enough to own a house, and

b) will be in deep shit on their mortgage if house prices go down, because mortgages are just highly leveraged investments.

edit: whenever house prices seem like they might go down, governments inject huge amounts of tax money into the housing market. The people that tell us in the US that cancelling student debt is a subsidy to the rich will never fail to send direct subsidy to homeowners and prospective homeowners. In that way, government interventions into the housing market only happen as a bubble is popping, and their intention is to maintain bubble pricing.

The downside for tenants is not being able to renovate. The upside is not being responsible for maintenance.

Best solution is deregulation. Housing is a primary need of humans, and we have been building our houses for cheap for most of history except the past 2-3 decades

No asset class can both “drive wealth” (in a predictable manner) and be available to all. Exclusivity is fundamental to privilege.

I feel people act naively on these discussions because they are afraid of offending others, but it is common sense that a ~0.3%/year influx of immigrants with low resources over 50 years has contributed in some way to economic disparity in Sweden. Nobody is saying that immigrants are having a negative effect here, it just means that newcomers have an uphill battle versus established families that have been building wealth for decades.

Not Swedish but I assume the ones who run the real estate interest groups are also hand in hand with those who own mainstream media so they have no interest to dig up dirt on them and will turn a blind eye.

I assume Germans initially also asked themselves why isn't the Wirecard fraud in the local media and only reports on it come from the US.

Influential people in a country tend to scratch each other's backs.

(I live and work in the countryside of Sweden. I recommend it.)

Like on bloomberg.com?

Think hard about those questions next time you read a news article.

https://en.wikipedia.org/wiki/List_of_grenade_attacks_in_Swe...

Doesn't even need to be that complex: land value tax would do it(and solve many other issues as economists have been saying for decades). Land scarcity shifts late-stage market incentives away from building to rent seeking and speculation. LVT would fix these incentives. It is badly needed in most first world countries at this point.