[HN Gopher] Why northern Europe is so indebted
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Why northern Europe is so indebted
Author : disadvantage
Score : 67 points
Date : 2023-03-20 21:16 UTC (1 hours ago)
(HTM) web link (theloop.ecpr.eu)
(TXT) w3m dump (theloop.ecpr.eu)
| sohtym wrote:
| Seems a bit general. Sweden is very much in debt because of the
| housing market. 15 years ago there were little regulation. You
| could get a 100 year mortgage with a variable rate and no money
| down. At the same time the government sold large amounts of
| public housing at below public market rate. Interest rates went
| from ~4% to ~1.5%. With no wealth or property taxes, but with tax
| deductions for renovations and interest rate payments. Most
| apartment buildings are co-ops, where the co-op have loans as
| well. Gradually there have been more regulation, but most still
| have variable rate mortgages which they are personally liable for
| and with no real a way to declare bankruptcy. Now interest rates
| will probably reach 4% again so hang on I guess.
| belter wrote:
| 300 to 400 year mortgages, on a fixed rate, sounds like my kind
| of deal...
| dijit wrote:
| Last time I looked at statistics Swedens debt to GDP was 35%,
| one of the lowest I saw, which doesn't really make sense to me
| when I consider the weakness of the currency, but then again I
| am just a humble engineer and I have no clue about these
| things.
|
| UK is close to 100% debt to GDP at the moment, the highest in
| recorded history.
| engineeringwoke wrote:
| The big issue in northern Europe is private debt, not
| government debt. Totally reasonable to not know
| JUNGLEISMASSIVE wrote:
| [dead]
| bobthepanda wrote:
| One of the benefits of a high tax regime is that it's not
| hard to not need to borrow money if you're smart about it.
|
| I follow some stuff about public transit, and Sweden has
| lower construction costs than the UK by an order of
| magnitude.
| nonethewiser wrote:
| It's a measure of household debt. Household debt is a general
| term that encompasses all type of debt including mortgages. Of
| course it's general.
| DavidVoid wrote:
| As always with debt, how bad it is very much depends on the
| interest rate of the loans. I bought an apartment here in Sweden
| a couple of years ago with the minimal required down payment (
| _kontantinsats_ ) of 15%, but 20% of my debt is still my student
| loan that currently has an interest rate of 0.59% (it was 0% a
| few years ago).
|
| I will say that the housing loans here have one potential issue
| though: it's _very_ common to have a variable (or only 2 year
| fixed) interest rate on your loan, so Swedish borrowers will
| notice increased interest rates much sooner than borrowers in
| countries where 5+ year fixed rates are common.
|
| Around 80% of new loans for house purchases here have their
| initial rate fixed for only 1 year or shorter [1].
|
| [1]
| https://sdw.ecb.europa.eu/quickview.do;jsessionid=3DC3C894DA...
| jopsen wrote:
| I live in Denmark, got 15 year mortgage at 0.5% (1% including
| fees)..
|
| But the variable mortgages are a bit sketchy, they could very
| well be a bomb under housing market -- and could cause prices
| to collapse.
| nonethewiser wrote:
| What are the interest rates now? Presumably they are
| significantly higher than a few years ago. Although maybe there
| is a delay.
| cmrdporcupine wrote:
| The explanation here still wasn't clear to me after several
| readings. They're showing that a bias towards social spending on
| the elderly was co-related with higher overall debt. But I'm
| unclear on their explanation.
|
| Given they're talking about mortgage debt in particular, would
| like to see plotted against housing prices.
|
| Especially curious if certain kinds social spending helps shore
| up baseline housing prices by increasing aggregate spending, by
| putting more cash in the system but also by reducing
| foreclosures/bankruptcies.
|
| And most importantly, if seniors can stay in their homes longer
| -- because of adequate pension systems -- that means less houses
| dumped on the market. "Selling the family home so I can afford to
| retire" (aka downsizing) is a pretty common maneuver in the
| Anglo-American economies [where pensions are dubious]. When all
| the baby boomers finally liquidate their real estate assets, it
| should be interesting to see what happens to housing prices. in
| North America
| plastic3169 wrote:
| I read it like welfare spending towards young caused the higher
| debt taking. Countries which had the bias towards elderly don't
| encourage to take loans.
|
| Also I've found that housing prices follow closely the ability
| to take loans up here.
| matsemann wrote:
| When you live in a stable society and have gotten a free
| education and a nice job, it makes sense to get a loan to buy a
| place to live and start paying a mortgage instead of debt.
|
| Contrast with a society where the average education might be
| lower, less people having a stable job in a slow labor market,
| and if you lose your job there is no safety net. Hard to get a
| loan, so end up renting for longer, and in turn have a lower
| average debt.
|
| Debt can be a proxy for a well working society, as you have the
| means to invest in your future, not just putting out short term
| fires.
| sacnoradhq wrote:
| In the absence of credit, if everyone had to pay with
| everything in cash, almost no one would have a home or car.
|
| It's stability of ability to service debt that matters, not the
| debt itself.
|
| High debt / income ratio at the micro level is bad, of course.
| sohtym wrote:
| > Contrast with a society where the average education might be
| lower, less people having a stable job in a slow labor market,
| and if you lose your job there is no safety net.
|
| Educational attainment in the Nordic countries isn't actually
| that good. It might have been at one point. These days I think
| it sometimes looks good because some statistics count having
| any experience at higher levels, which having cost-free
| education facilitates. If you instead look at actual degrees
| the Nordic countries are average among OECD countries.
| Bachelor's degrees OECD Average 18% Iceland
| 21% Denmark 20% Norway 20% Sweden
| 18% Finland 20%
|
| Countries above 21% in OECD: Australia, Belgium, Canada,
| Colombia, Greece, Ireland, Israel, Japan, Korea, Lithuania,
| Netherlands, New Zealand, Switzerland, United Kingdom, United
| States.
|
| Source: https://www.oecd-
| ilibrary.org/sites/b35a14e5-en/1/3/2/1/inde...
| dmos62 wrote:
| That's what the article said. Mortgage debt can be a proxy for
| privilege, while consumer debt can be a proxy for need.
| ajsnigrutin wrote:
| Also, most europeans tend to settle down, and not move across
| the continent every few years, so buying instead of renting
| makes even more sense, since you'll be staying in that house
| probably for the rest of your life.
| Hamuko wrote:
| Where the hell are people "moving across the continent every
| few years"?
| labster wrote:
| The US and Canada.
| djbusby wrote:
| USA. Eg: Seattle has lots of out-of-state migrants, as does
| SFBay, Boston and NY.
| Hamuko wrote:
| What's the source for that? Doesn't sound right when I've
| seen claims such as "nearly 72% of Americans live in or
| close to the city where they grew up" [1] and "the
| typical adult lives only 18 miles from his or her mother"
| [2].
|
| [1] https://www.prnewswire.com/news-releases/what-
| percentage-of-...
|
| [2] https://www.nytimes.com/interactive/2015/12/24/upshot
| /24up-f...
| chucksmash wrote:
| The irony of having this discussion on a site run by
| people who pay potential founders to move across the
| continent for a couple of months.
| sacnoradhq wrote:
| Seems a Good Thing(tm) signaling economic activity and a
| draw that more people want to be in proximity of said
| activity.
| vonmoltke wrote:
| First, "out of state" doesn't mean "across the continent"
| (though that is more likely in Seattle or SF, since
| they're rather isolated from out of state population
| centers).
|
| Second, that is not evidence in the slightest of people
| doing this "every few years". Hell, most people don't
| want to move locally that often, let alone an expensive
| and very disruptive long distance move.
| [deleted]
| ajsnigrutin wrote:
| https://www.census.gov/topics/population/migration/guidance
| /...
|
| This is geoblocked in slovenia, but the google summary
| says:
|
| > Using 2007 ACS data, it is estimated that a person in the
| United States can expect to move 11.7 times in their
| lifetime
|
| If we neglect the student ages for those without student
| housing or living nearby, most people here move from their
| parents to their own place, maybe again if they're renting,
| and then to a "better place" if they can afford one later
| on. 11.7 times is way above what most people here do.
|
| 80 years of life, 11.7 movings, 6.8 years between moving.
| Realistically more often than that during younger years,
| since I'd guess retired people move less often.
| nonethewiser wrote:
| You didn't address the "across the continent every few
| years" part. Moving frequently on average in no way
| indicates they are moving across the country every few
| years.
| nonethewiser wrote:
| > and start paying a mortgage instead of debt.
|
| But a mortgage is debt ... ?
|
| I'm not sure this accounts for it. Paying a mortgage "instead"
| implies it's merely a replacement. But in reality the debt is
| 2-4x higher than other OECD countries.
|
| This stat makes it sound rather unsustainable:
|
| >Four in 10 mortgage borrowers in Sweden are not paying off
| their debt, and those that are repaying the principal do so at
| a rate that would on average take nearly a century.
|
| https://www.cnbc.com/amp/2014/08/24/swedish-household-debt-s...
| DavidVoid wrote:
| > Four in 10 mortgage borrowers in Sweden are not paying off
| their debt,
|
| I believe this is no longer true. Since 2016 there is an
| _amorteringskrav_ (amortization requirement) on housing
| loans. All new housing loans with a loan-to-value ratio of
| 70% or higher must pay off at least 2% of the loan per year,
| and if you 're below 70% then you must pay off at least 1%
| per year until you're below 50%. You must also pay an
| additional 1% per year if you've borrowed more than 4.5 times
| your yearly salary (excluding taxes).
|
| When you buy a house/apartment it's most common to have an
| initial loan-to-value ratio of 85% (since you're only allowed
| to get a housing loan for up to 85% of the property's value).
| mfer wrote:
| > When you live in a stable society and have gotten a free
| education and a nice job
|
| The education isn't free. It's covered by taxes so you, and
| everyone else, pays for it for a long time. There's quite an
| expense to have the instructors, buildings, etc.
|
| I'm glad you think the people who haul away garbage, are
| plumbers, are electricians, etc have nice jobs. Those jobs
| exist and people do them in those stable societies.
|
| > paying a mortgage instead of debt
|
| A mortgage is a form of debt.
|
| > Contrast with a society where the average education might be
| lower, less people having a stable job in a slow labor market,
| and if you lose your job there is no safety net.
|
| This is where things get weirdly complicated. Where I live
| there are safety nets. The state has said that only about 10%
| of what's available is used. Where there are safety nets many
| people don't try to use them. I know people who complained
| about a lack of safety nets and didn't take advantage of the
| ones available to them.
|
| > Hard to get a loan, so end up renting for longer, and in turn
| have a lower average debt.
|
| It's far more complex than that. For example, businesses are
| buying homes up for far more than asking price and what most
| people can pay. So they can turn around and rent them. This is
| all driving up the asking price for homes.
|
| > Debt can be a proxy for a well working society, as you have
| the means to invest in your future, not just putting out short
| term fires.
|
| This really depends on where debt is. In the US a lot of debt
| is to fuel consumerism. Or, to have more things now. A lot of
| the parts of society drive people to this. It's become
| cultural.
| tester756 wrote:
| >The education isn't free.
|
| That's just directly vs indirectly, isn't it?
| kevmo wrote:
| "Debt, n. An ingenious substitute for the chain and whip of the
| slavedriver."
|
| - Ambrose Bierce, Devil's Dictionary
| adaml_623 wrote:
| I really don't like the graphs / diagrams in that article. I feel
| they need units on the graphs.
|
| And figure 2. is based on data from 2007
|
| And figure 3. is comparing very different things on the same
| diagram.
|
| If this were an undergraduate project I would not give it a pass.
| [deleted]
| jahnu wrote:
| More on Danish mortgages from last year
|
| https://www.washingtonpost.com/business/denmarks-mortgage-ma...
| nonethewiser wrote:
| Many of the reactions here seem rather defensive. Observing that
| mortgages are the main driver isn't some takedown of the article.
| It makes the exact same observation.
| bkor wrote:
| > It makes the exact same observation.
|
| I find it highly difficult to figure out what the article is
| trying to say. This especially as it's trying to say something
| about private debt vs the welfare system. I don't understand
| what the article is trying to say, especially the link between
| welfare system vs mortgages vs debt.
| thedudeabides5 wrote:
| Maybe it has something to do with the negative interest rates?
| viking1066 wrote:
| It would make sense to correct for home ownership rate. With
| higher rates of home ownership, a higher debt is justified.
|
| For example USA and Germany seems to have about the same level of
| household debt, but USA has 65% home ownership rate, while
| Germany has only 51%.
|
| https://en.wikipedia.org/wiki/List_of_countries_by_home_owne...
|
| The other interesting thing is that South Europe in general has a
| longer history of financing public works like churches, than
| Northern Europe, but in terms of household debt, that
| relationship seems inverted.
| mikaeluman wrote:
| Change the title name to be more approptiate. This is about
| private debt, not total debt.
|
| "Why Northern Europe is so indebted" sounds like clickbait...
| nonethewiser wrote:
| "Northern Europeans" would be more accurate
| VWWHFSfQ wrote:
| It's my understanding that the northern European countries have
| very low immigration rates which means that their existing
| (mostly native) population is entirely responsible for their
| economic growth. That population grows old and fewer and fewer
| young people are available to contribute to the state-funded
| "welfare" to support their parents retired lifestyles. So the
| debt accrues and the country eventually becomes a "welfare state"
| with young people paying 50-60% of their income to taxes.
| whitemary wrote:
| Northern European countries have significantly higher fertility
| rates than the US. See: https://www.cia.gov/the-world-
| factbook/field/total-fertility...
|
| > Total Fertility Rate (TFR) is a more direct measure of the
| level of fertility than the crude birth rate, since it refers
| to births per woman.
| jltsiren wrote:
| It depends on the country. Sweden and Norway have a larger
| share of foreign-born population than the US and the UK.
| Netherlands is roughly on the same level as the US and the UK,
| while Denmark and Finland have fewer immigrants.
| mikl wrote:
| Maybe over a decade of near-zero interest rates could have
| something to do with it?
|
| The cheaper it is to borrow money, the more people borrow,
| unsurprisingly.
|
| This is what's been driving the massive rises in property prices
| the last many years. It's straight out of "Economic Bubble
| Creation 101".
| layer8 wrote:
| May load faster: https://archive.ph/J72Cl
| cronin101 wrote:
| This is such a non-story, mainly driven by the fact that home
| ownership in Nordic countries is ubiquitous (80% of Norwegians
| OWN their primary dwelling) combined with the high medium incomes
| resulting in those houses being quite expensive. I'd really
| recommend not trying to draw any deeper conclusions from this
| data.
|
| Edit: by "own" I mean "have a non-paid off mortgage", the tax on
| net wealth here actually disincentives paying off a mortgage
| early vs "leveling up" your debt/house.
| robomartin wrote:
| > 80% of Norwegians OWN their primary dwelling
|
| I see your clarification. Question: In Norway, if you pay-off
| your mortgage, do you still owe annual taxes on your property?
| If so, how much? What happens if you don't pay property taxes?
|
| One of the things that has always bothered me about home
| "ownership" is that, from my perspective, at least in the US,
| you never really own your home. You can pay off your mortgage,
| of course. However, if you stop paying property taxes you can
| lose your property in a forced sale.
|
| That is not my definition of owning something. If it can be
| taken away, you do not own it. We have somehow been led to
| believe we can own property. I don't think that's the case. If
| you own your property it should mean that you can live there
| with zero income and have nothing to pay anyone except for the
| things you want to pay for (power, gas, connectivity,
| whatever).
|
| Someone might say: We need taxes to pay for X. Well, sure. I
| get that. We should get that money through other means, not
| through a system where people work their entire lives to pay
| off a mortgage only to discover they will have to keep paying
| to "own" that home for the rest of their lives. Perhaps the
| distinction should be your residence vs. investment/rental
| property. Not sure. Haven't through it through much deeper than
| that.
| yokoprime wrote:
| > if you pay-off your mortgage, do you still owe annual taxes
| on your property
|
| Depends on where you live. Some counties has property taxes,
| others do not. One reason for why Norwegians have lots of
| debt is that its subsidized since you can write off parts of
| the interests from your taxes. Also there is taxes on wealth,
| i.e the tax system incentivizes having debt.
| JUNGLEISMASSIVE wrote:
| [dead]
| TheCoelacanth wrote:
| Property owners benefit more from local tax spending than
| anyone else. Why shouldn't they pay for it?
|
| We already subsidize home ownership by quite a bit. We don't
| need to subsidize it more.
| nonethewiser wrote:
| I'm sympathetic to this observation but what's your point?
| Just a tangent? There is nothing wrong with that but I'm not
| sure if this is supposed to clarify something.
|
| For whatever it's worth it looks like at least Sweden and
| Norway have property taxes. Didn't check others.
|
| China is an example of a country without them. Except you
| can't own land in China. Your house is effective leased from
| the government. So not exactly an improvement.
| smcl wrote:
| Not _Northern_ Europe, but Czech Resident here. There has been an
| _explosion_ in house prices here, a truly wild one. I bought my
| place for 3.6m CZK about 7 years back and according to a recent
| valuation practices is "worth" nearly double this now. It is
| fucking wild, and tbh I kind of hate it.
| the_third_wave wrote:
| That has been going on for decades in the Netherlands, I bought
| a (newly built) home in 1996 when the country still used the
| Dutch Guilder and sold it for the same amount in EURuros in
| 2002. One Euro translates to 2.21 Guilders, i.e. the house sold
| for more than double the price in 6 years time. For what I got
| for a relatively modest semidetached house on 220 m2 of land in
| the Netherlands I could buy a 22 hectare farm in Sweden with
| money to spare. Ridiculous, that is what it is.
| ajsnigrutin wrote:
| How much new housing is being built there?
|
| I'm from slovenia, former yugoslavia, and the situation here is
| the same, making it practically impossible for an average
| couple to buy anything here (and we're worrying about the
| demographics, lol).
|
| Back in yugoslav times, government built large apartment
| building complexes, by basically finding an empty field at the
| end of the city, saying "this is a city, farms should be
| outside the city, not within it", and building a complex of
| apartment buildings, and then another, and then a
| school/kindergarden, and then two or three more. And by complex
| I mean literally tens of 5+ story apartment buildings. Since it
| was socialism, those apartments would be rented out to workers
| by the government.
|
| On the other hand, people who wanted a house (instead of an
| apartment) could buy a plot of land, and build houses
| themselves... and i mean literally themselves... some of them
| would even dig the basement level by themselves, ask friends
| for help, every friday after work go to a buildng materials
| store, fill up their car with a few bags of cement and bricks,
| lay a layer of two down, and then wait for the next weekend.
| Fascade, insulation, sometimes even the upper floor could wait
| for better times, while people moved into the ground floor.
| Dealing with permits and papers was a thing "to deal with
| later".
|
| Then came independence, the government didn't want to deal with
| so many apartments and sold them to renters for a price of a
| mid-range car.
|
| And the current generations? Fucked. Like totally.
|
| A field right next to the roundway around the city? Sure [1].
| Next to highrises? Sure [2]. New large apartment complexes?
| Nope. want to buy a few houses and build a larger apartment
| building? You better literally be friends with the mayor, since
| zoning doesn't allow more than two-floor two-apartment
| buildings. Want to build on an empty field? Nope, zoning
| doesn't allow it.
|
| People complain we literally need tens of thousands of new
| apartments, and all that's being built is ~4 "luxury" apartment
| buildings in relatively shitty locations (but still better than
| nothing) and every now and then someone gets a blessing from
| the mayor to build a 6-8 apartment building in a place where an
| old house once was. ...and then those apartments are bought up
| for way above what they're worth by people who then rent them
| out via airbnb.
|
| What if you're magically somehow able to aquire some land where
| it's allowed to build stuff? Permits and other papers take
| years. Want to build yourself? Nope, no way. Want friends to
| help? If they're not licenced contractors and giving out
| receipts, they're considered as working illegaly and
| inspections check those things a lot.
|
| Add to this some NIMBYism, where the neigbor complains if
| you're building a house there, and the situation is even worse.
|
| And public housing? The government built one complex of those,
| and the build-price was higher than retail price a few years
| before it was built (like 2800eur/m^2)... because well,
| government and corruption.
|
| So yeah...
|
| In the end, this is how you get revolutions and terrorism...
| You're a good worker, save money, save 10k eur in a year (a lot
| for most), and the apartments you were looking at are 30k more
| than last year. Why bother? People have nothing left to lose,
| because the average rent is above average pensions, so without
| something huge changing soon, a lot of people will be homeless
| and literally without anything to lose anymore.
|
| [1] https://goo.gl/maps/iL7962VtEzThwgAb8 [2]
| https://goo.gl/maps/6Do3W3KWXWKpxw1DA
| chrisco255 wrote:
| In US markets, prices have basically tripled from what they
| were 7-9 years ago.
| rootusrootus wrote:
| That is not accurate, though in some specific regions it may
| be true. Overall, prices right now are just a little above
| twice what they were at the low point in 2012 [0]. From 7-9
| years ago, even at the high point we were less than double.
|
| [0] https://fred.stlouisfed.org/series/CSUSHPINSA
| legitster wrote:
| Uh... big asterisk here depending on where you live.
| layer8 wrote:
| (2021), according to archive.org and the comment on the article
| page.
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