Sweden’s financing system is holding back housing development – it’s time to follow Europe’s lead

Sweden’s major banks have long been the backbone of residential project financing. But according to the ECB, tightening requirements and rising risk exposure have led banks to pull back on lending to new developments. The financing landscape is shifting, yet Sweden lacks the structures needed to capitalise on alternative financing. If we want to fix the housing market, we need to take our cue from the rest of Europe, write Lottie Löf, CEO of Bostadskreditfonden, and Peter Zonabend, CEO of Arwidsro.

Something is broken in the way Sweden finances housing. Across the country, projects that are viable on paper are stalling or being abandoned. Not because of weak demand or poor planning, but because the financing simply isn’t there. The system as it stands cannot accommodate the flexibility that many developments require, and the consequences are being felt throughout the market. Developers face costly delays, and the broader housing shortage deepens.

Europe is showing the way

According to the OECD, Sweden has one of Europe’s most bank-dependent financial systems. Around 70–80 percent of corporate external financing flows through banks, compared with approximately 55–60 percent in the eurozone. That concentration matters, because when banks tighten their lending criteria, as the ECB notes they have been doing, there is little else to fall back on. Unlike many EU member states, Sweden has no clear regulatory framework for alternative lenders to step in and fill the gap.

The contrast with the rest of Europe is striking. Data from JLL indicates that traditional banks now account for around 35 percent of commercial real estate lending across Europe, down from over 70 percent two decades ago. Funds and institutional investors have absorbed much of that shift, playing a central role in keeping capital flowing to the sector. A KTH study confirms that Sweden has not followed this trajectory, alternative financing remains marginal here by European standards.

The ECB has repeatedly stressed the value of a diversified financing base, noting that a broader mix of funding instruments helps spread risk and makes capital flows to the real estate sector more resilient across economic cycles.

Sweden is falling behind

What makes this particularly frustrating is that the capital exists. The problem is not a lack of investor appetite, it is that Sweden’s regulatory framework makes it unnecessarily difficult for that capital to reach the projects that need it. The result is a system where vast pools of funding sit idle while viable housing developments go unbuilt.

We believe three changes would make a meaningful difference:

1. Establish a clear framework for alternative lenders

Finansinspektionen and the government should look to peer markets for guidance. France and Germany have both developed transparent regulatory frameworks that allow alternative lenders to participate meaningfully in residential financing, without increasing systemic risk. A similar approach in Sweden would open the door to a much broader range of capital.

2. Introduce public guarantees

Well-designed guarantees, targeting early-stage development, land allocation, or sustainability-linked projects, would give funds the confidence to lend on viable terms. Germany’s KfW model and Denmark’s green investment credit guarantee are worth studying in this context. The key is that any guarantees are carefully structured, properly priced, and limited to projects with sound economic fundamentals. The point is not to eliminate risk, but to distribute it in a way that unlocks capital where it is most needed.

3. Facilitate collaboration between market participants

Hybrid financing structures that combine bank lending with fund capital have become standard practice across much of Europe, and for good reason, they distribute risk more effectively and provide a more stable foundation for development. Standardised term sheets and streamlined credit processes would help bring this model to Sweden, making financing faster and more predictable, and ultimately enabling more homes to be built.

We cannot afford to wait

The case for alternative financing in Sweden is not complicated. The current system is not delivering, and there is no reason to expect that to change on its own. Other European markets have already solved this problem. The frameworks exist, the models are proven, and the capital is available. What Sweden needs now is the will to act.

Lottie Löf, CEO Bostadskreditfonden
Peter Zonabend, CEO, Arwidsro