The politics of mortgage credit expansion in the small coordinated market economies

Abstract

Recent contributions to the comparative political economy literature claim that liberal market economies are vulnerable to asset booms and busts because of financial deregulation, shrinking welfare states and a political ideology emphasising financial self-sufficiency. This article examines the rapid expansion of mortgage lending in three coordinated market economies (CMEs): Denmark, Sweden and the Netherlands. This expansion is puzzling given that all three countries are CMEs with generous welfare states. Yet the pattern of mortgage lending resembles the Anglo-Saxon or liberal market economies (LMEs) more than other CMEs. The article argues that mortgage bubbles in the small CMEs emerged as the unintended outcome of pairing neoliberal programmes to expand home ownership with collectivist housing institutions. This resulted in supply restrictions and rising property values which saddled households with extraordinarily high mortgage debts. In short, mortgage credit bubbles are not unique to Anglo-liberal welfare states and may have different origins.

Keywords:

• Mortgage bubbles
• coordinated market economies
• residential capitalism
• Sweden
• Denmark
• Netherlands

Acknowledgements

We would like to thank Alison Johnston and Herman Schwartz and the journal’s reviewers and editors for helpful comments on the previous drafts of this manuscript.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributors

Karen M. Anderson is Associate Professor of Social Policy at University College Dublin. Her research focuses on the comparative political economy of the welfare state. Her articles have appeared in Journal of European Public Policy, Comparative Politics and Journal of Public Policy, among others. [[email protected]]

Paulette Kurzer is Professor in political science at the School of Government and Public Policy, University of Arizona. She has written articles for Governance, Journal of European Public Policy and German Politics, among others. Her research focuses on housing markets and housing policy. [[email protected]]

Notes

1 From the Aedes website: https://www.aedes.nl/feiten-en-cijfers/geld-en-investeringen/hoe-financieren-woningcorporaties-de-sociale-wonin/expert_hoe-financieren-woningcorporaties-de-sociale-woningbouw.html#item-1

2 Sveriges Allmännyttiga Bostadsföretag (SABO), Swedish Association of Public Housing Companies. http://www.sabo.se/om_sabo/english/Sidor/Housing.aspx

3 A detailed narrative of the scandals can be found at https://www.nrc.nl/dossier/problemen-bij-woningcorporaties/

4 Housing in Sweden: An Overview. November 2017. http://ternercenter.berkeley.edu/uploads/Swedish_Housing_System_Memo.pdf

5 However, until 1992, corporate investors (pension and insurance funds) could claim a tax exemption on corporate tax return for investing in rental dwellings. This tax exemption was abolished in 1992 for new construction and for existing stock in 2004.

6 There has been a surge in construction since 2013 and 53,5007 homes were completed in 2017 – a level not exceeded since 1991. However, most of the new dwellings are for the luxury sector of the owner-occupied housing market. See Regieringskansliet, Sweden’s National Reform Programme 2018. https://ec.europa.eu/info/sites/info/files/2018-european-semester-national-reform-programme-sweden-en.pdf

7 See the Association for Financial Markets in Europe (AFME) for the size of the securitised mortgage market in each member state. http://www.afme.eu

8 Swedish Bankers, The Mortgage Market in Sweden (September 2015). https://www.swedishbankers.se/en-us/the-swedish-bankers-association-in-english/statistics-publications/the-swedish-mortgages-market/