The Effect of Subsidy on Housing Construction Stocks in Various Regions of Sweden

Governments around the world utilize various types of subsidies in order to counter problems of housing shortages and affordability concerns. Reduced interest rate or alternative investments of construction loans are examples of subsidy policies on the supply side that are intended to offset high construction costs and thus boost the housing stocks. Vouchers and direct financial aid for low-income households belong to the demand side of the subsidy policies. These subsidy policies may be expected to have different effects on both the housing stocks of different regions and the distribution of tenure types of housing stocks within a region. Until recently, Sweden has had both general and targeted subsidy policies. An interesting question is whether these types of subsidies produced the intended objectives of increasing the housing stocks. First, the efficiency of general subsidy and its effect on housing stocks of all the regions before it was abolished will be examined. Secondly, the replaced targeted subsidy and how it fared with its objectives as well as how it impacted the tenure neutrality of different types of housing will be analyzed. A multiple regression of two models from un-balanced panel data of construction costs variables in seven regions will be analyzed. Our result seem to indicate that a general subsidy is expected to be ineffective since it may increase the existing stocks of low demand region but not the housing stocks of big regions where the demand is high. A targeted subsidy may change the balance between different types of housings since lower construction costs due to the subsidy could favor the development of certain profitable housing type.