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The Visible Hand - Creating Space for Architecture in a Capitalist Housing Market

Economics and architecture are two central yet contrasting aspects of housing construction. While economics is quantifiable and governed by market logic, the values of architecture are often more difficult to measure. In today’s capitalist housing market, economic factors have gained dominance, marginalising the role of architecture.

This text analyses the structural conditions behind this imbalance and discusses solutions for creating space for the immeasurable qualities of architecture in future housing production. By highlighting tools such as accounting and required returns, as well as presenting concrete strategies for strengthening the position of architecture, the text reflects on how a more balanced view of economic and architectural values can be achieved. The text has a focus on Sweden’s market, but the principles can be applied broadly.

Glossary

Required return – The return (interest or profit) that investors expect as compensation for the risk of an investment.

Presumption rents – A system that allows property owners to set a higher rent for newly produced rental apartments during the first 15 years before the rent is reviewed according to the utility-value principle.

Risk premium – The extra return investors demand for taking on the risk of an investment compared to a risk-free placement.

Tobin’s q – Measures the relationship between market valuation and intrinsic value. A key ratio calculated by dividing the market value of a property by its acquisition cost. A value below 1 indicates that it is more expensive to build the property than the value it achieves on the market.

Impairment – A non-planned downward adjustment of an asset’s book value to a lower market value, which negatively affects the company’s results and equity ratio.

Component depreciation (K3 framework) – An accounting principle allowing different parts of a building to be depreciated separately, enabling more flexible and long-term economic planning.

Risk-free interest rate – The return one can receive without taking any risk, often based on the government bond rate. Used as the baseline for calculating required returns.

Boverket – The Swedish National Board of Housing, Building and Planning. It is a government authority responsible for regulations, supervision, and guidance related to urban planning, building standards, housing policy, and sustainable community development in Sweden.

The Measurable and the Immeasurable

The question of qualitative architecture has become increasingly secondary in a Sweden marked by sharply rising housing prices and highly indebted households. For many, the possibility of purchasing a home with high architectural quality feels remote. But what, in fact, do we mean by qualitative architecture?

In my view, it consists of hard-to-measure factors such as spatial proportions and light. Although some principles are considered universal, they may need to be reconsidered depending on context.

Even though architects possess knowledge that helps answer such questions, many of these judgments remain subjective, and therefore immeasurable. Architecture has an artistic and emotional integrity that exceeds the boundaries of what can be quantified.

Economics permeates architecture. The physical manifestation of architecture is one of its core purposes, and what we build costs money. For private actors on the market, profitability is essential for maintaining a sustainable business model. The degree of profitability, however, is up to them to decide. Neoclassical economic theory suggests that these actors will sell for as high a price as possible within the limits of existing demand. Unlike architecture, a project’s financial parameters are straightforward to measure.

“Architecture has its own realm. It has a special physical relationship with life. I do not think of it primarily as either a message or a symbol, but as an envelope and background for life which goes on in and around it, a sensitive container for the rhythm of footsteps on the floor, for the concentration of work, for the silence of sleep.”

— Peter Zumthor, Thinking Architecture

Within the housing market, the relationship between measurable economics and immeasurable architecture becomes particularly interesting. As the housing market has become more deregulated, economic concepts have grown increasingly important. The systematic shortcomings present in Sweden have accelerated this dominance. This begs the question, how do the capitalist structures that shape today’s built environment function, and in what ways can we move toward a balance between sustainable economics and well-formulated architectural expression?

Institutional Conditions

The Swedish housing market has a long and complex history in which the emergence and influence of the welfare state have been particularly significant. Today’s conditions, however, are largely rooted in the systemic shift of the 1990s, a period characterized by deregulation and fiscal consolidation. Instead of protecting housing production from market forces, the prevailing view became that those who build should shoulder greater responsibility. State housing financing was dismantled, and responsibility for keeping interest costs down for new construction fell entirely on the national bank.

The removal of state subsidies reduced interest in producing new rental housing, leading to a reform of rent-setting in 2006 and the introduction of presumption rents. Presumption rents allow property owners to set higher rents for newly built apartments. After 15 years, the rent can be reviewed according to the utility-value system . Various types of subsidies have been tested to stimulate rental construction, but these often support projects that would have been built anyway, making them relatively ineffective. Currently, no subsidies exist for rental housing, though the issue remains debated.

Despite the fact that presumption rents have made it easier to cover production costs, several risks remain for property owners, especially when the presumption period expires. The Swedish Fiscal Policy Council argued in a 2019 report that freer rent-setting is needed to stimulate rental construction, though such changes would raise rents for almost all households, particularly low-income households. Balancing reasonable rent levels with stimulating construction is challenging. Today, housing supply is low and waiting lists are at historic highs.

At the same time, the ability to access owned housing has changed. Antti Kurvinen highlights several decisive factors in his book Lönsamhetskalkyl för hållbart bostadsbyggande (2020). After the 2008 financial crisis, banks became more restrictive in granting mortgages, requiring borrowers to demonstrate the ability to repay even at high interest levels. Concerns about household indebtedness led to the introduction of the loan-to-value cap in 2010, requiring a minimum down payment of 15 percent. In 2016, amortisation requirements intensified credit restrictions.

Housing prices have risen faster than inflation several times over. This may partly be due to the shift from a proportional property tax to a municipal property tax, but also due to rising production costs and increased demand in the most attractive locations. Combined with stricter lending rules, households’ purchasing power has eroded. While many of these restrictions were important for the macroeconomy, they also contribute to an increasingly segregated housing market.

The Economics of Construction

It is clear that there are major inefficiencies on the demand side of the housing market. But what does the supply of housing look like? In an interview, Professor Walter Unterrainer describes Sweden’s construction sector as one of the most expensive, and lowest in quality, in Europe. A significant part of the problem lies in the oligopolistic structure of the Swedish construction market, where a small number of major construction companies dominate.

The Swedish Competition Authority noted in a 2006 report that large developers do not procure services on the market but instead build much of their production in-house. This is problematic because these companies account for a large share of housing production. When they do procure services, it occurs through negotiations rather than open competition. Smaller construction firms are weakened when they are forced to remain outside the market, further cementing the dominance of the construction giants and reducing innovation within the sector.

Another factor that significantly affects the ability to produce new housing is the structure of the financial system. Reduced state engagement has strengthened the power of banks in relation to developers and other actors in the market. Bank financing is essential for housing construction, meaning developers must meet the banks’ requirements to obtain loans. In a 2019 report, Kajsa Crona notes that this has reduced the willingness to invest in sustainable and high-quality solutions. If developers want to build more expensively to increase sustainability and longevity, this may conflict with short-term profitability, something banks may view as a risk and refuse to finance. Developers themselves must also meet various requirements to obtain loans, such as references and payment history. For small or newly established actors, this can be a significant barrier even if the project has good potential to be stable and successful.

Implications for Architecture

A majority of Sweden’s municipalities report a housing shortage. Building more is easier said than done, and several systemic shortcomings hinder the market from reaching its potential. Households with weaker finances struggle to find suitable housing due to poor supply of rental units and difficulty obtaining loans. At the same time, Sweden has some of the highest construction prices in Europe, where short-term profit plays too central of a role.

The discussion surrounding housing construction is therefore overshadowed by the need to build cheaper. Although this issue is important, it risks steering the debate in the wrong direction. Instead of allowing immeasurable architectural qualities to enter the economic calculations, the focus becomes cutting costs. The problem is intensified, according to Walter Unterrainer, by the marginalised role of the architect. Today, developers tend to trust builders more than architects. This undeniably affects architectural quality negatively but is not surprising in Sweden, where large developers often build in-house.

Unterrainer notes in an interview with Claes Caldenby that this would be seen as unusual in other parts of Europe, where developers tend to rely on architects as close advisors throughout the entire project. Furthermore, he argues that architects can optimise based on both needs and resources, while most builders primarily focus on maximising their own profit. In a country like Sweden, characterised by standardised and industrialised construction, this dynamic is even more pronounced.

The Constant Tension Between Cost and Quality

The continuous struggle between lowering costs and maintaining quality is highly complex. Challenging these boundaries is necessary to ensure that immeasurable architectural qualities remain accessible to people from all socioeconomic backgrounds. Today, there is very limited room for architectural quality between production costs and required returns, especially in less attractive locations. The question is therefore how more room can be created for such qualities without compromising the economic sustainability of projects.

The Paradox of Peripheral Locations

Required return is one of the primary tools developers use to assess whether a housing project is profitable. It consists of two components: the risk-free interest rate and the risk premium. The risk-free interest rate represents the return one can obtain without risking capital, often based on the government bond rate. The risk premium is the additional return expected as compensation for the risk of the investment. Its size depends on risk profile and market perceptions. This results in lower required returns in central, attractive locations and higher required returns in peripheral ones.

Antti Kurvinen argues that this practice can be questioned. The increased risk premium is often linked to the risk of vacancies. Kurvinen, however, contends that this risk should be close to zero in Sweden due to the persistent housing shortage. A higher required return compels developers to set higher rents for new production. This in turn reduces the attractiveness of peripheral areas, and is what actually creates the vacancy risk. If required returns were lowered in these areas, rents could be reduced or more room could be given to architectural qualities that are otherwise deprioritised.

Accounting – Problem or Opportunity?

Long-term sustainable property economics relies on sound accounting. Two central concepts that affect the profitability of a construction project are depreciation and impairment. Both describe changes in value: depreciation is a planned value reduction over time, whereas impairment is an unplanned adjustment of an asset’s book value to a lower market value.

There are two primary regulatory frameworks, K2 and K3, the latter being more complex and often used by larger companies. All firms may, however, choose K3, though once a firm moves from K2 to K3, it cannot switch back. K3 allows for component depreciation, meaning different parts of a building may be depreciated separately. Crona argues that it would be advantageous if more firms adopted this method, as simplified K2 accounting may result in buildings being depreciated more quickly even when long-term intentions are present in certain components of the building.

In his book, Kurvinen presents the project Pumpkällehagen by Viskaforshem, which used durable materials to minimise operating and maintenance costs. Examples include Rheinzink, which requires no treatment, and façade boards pressure-treated and boiled in linseed oil. This project is one of the few instances in which architectural quality is clearly reflected in the economic calculation. Although Viskaforshem uses K2, the consistent use of durable materials justified a longer depreciation period, approximately 70 years. This reduced capital costs, which in turn led to lower rents.

Mikael Bengtsson, CEO of Viskaforshem, notes that this type of planning requires “ice in one’s veins,” as one must trust that operating and maintenance costs will indeed remain low to justify lower required returns and therefore lower rents. In this case, rents have only increased moderately over the past ten years and the project has become a benchmark for future investments.

In an interview with Crona, Bengtsson also identifies a major barrier: the relationship between acquisition value and market value in smaller towns. Tobin’s q is calculated by dividing market value by acquisition cost. If Tobin’s q is below 1, it means the cost of construction exceeds the market value of the building. Because market value depends heavily on geographic location, buildings with high construction costs in less attractive regions often receive a low Tobin’s q. If market value falls below previous book value, companies must make an impairment. This means money “disappears” from the income statement, and the company risks showing a loss. This negatively affects the equity ratio, making future financing more difficult.

A key point is that impairments do not affect cash flow or long-term management. Despite this, Viskaforshem’s project has been questioned by the municipality’s economists, even though cash flow is positive. This again shows how accounting practices can hinder investment in architectural quality. Crona proposes a possible solution: to postpone property valuations for the first ten years and allow construction cost to represent the building’s value. While this could stimulate construction in weak markets and temporarily reduce rents, the problem remains once market valuation returns. Therefore, one may argue that targeted subsidies could be more effective in achieving a Tobin’s q above 1 in peripheral areas, although subsidies also have drawbacks.

Architects as Developers

As mentioned earlier, the marginalised role of the architect in the building process is one reason for the increased imbalance between economic incentives and architectural quality. For a long time, architects held a leading position in construction, but this changed with the industrialisation of the building process in the mid-20th century. Today, it has become particularly important to have a developer who values architectural quality for such qualities to be prioritised at all.

One phenomenon that challenges this distribution of responsibility occurs when architects themselves act as developers. This allows uncompromising prioritisation of immeasurable qualities. From a business perspective, it also means that required returns can be more flexible, creating more room in the profitability calculation.

One architecture firm that deserves attention for its involvement in development is Förstberg Ling and their project Twelve Houses in Sorgenfri. By combining the roles of architect and developer, they ensured that the initial vision was realised all the way to completion. In this project, Förstberg Ling used brick façades and cross-laminated timber elements exposed in the interior. When asked, Mikael Ling explains that it was a conscious choice to build better rather than to earn more. He also highlights the difficulty of balancing construction costs and selling prices, even with modest profit margins.

Although there are many advantages to architects taking a greater role in development, it is still uncommon. This is something Unterrainer also sees as a problem. He argues that architectural education does not prepare students sufficiently to take responsibility in the profession. Without a basic understanding of economics, it becomes difficult to argue convincingly for design principles, even when they are economically advantageous.

Despite the educational gap, Ling believes that more architects should build on their own. According to him, it is difficult for other occupations to make a holistic assessment of quality versus cost.

Regulation

In late 2024, Boverket decided on new building regulations intended to promote new technical solutions and methods. They argued that the previous building regulations had been more prescriptive than intended. Boverket named this new framework “The Building Rules of Possibilities”, but the proposal has faced strong criticism, especially from the architectural profession.

The union of Sweden’s architects rejected the proposal in its consultation response, arguing that it needs further development with a stronger focus on quality, sustainability, architecture, and the designed living environment. According to Boverket, the requirements have not been lowered, rather, they claim there are now greater possibilities for interpretation.

However, Anna Kaplan Wikström, social policy investigator at the union of Sweden’s architects, argues in an interview in Arkitekten that this is not true. She points out, for example, that daylight requirements have been halved, and that the minimum ceiling height of 2.4 meters in dwellings has been removed. According to Wikström, these changes could be exploited by profit-driven developers, risking a decline in housing quality.

But are relaxed standards truly as negative as the architectural profession claims? In theory, these changes could allow new spatial solutions that function well and are sustainable, without being limited by standardized measurements.

Walter Unterrainer argues that overly technical regulations in Sweden can create unnecessary costs and hinder competition. He notes that Swedish accessibility regulations may even make housing economically inaccessible, because they raise costs to a level where many people cannot afford to live in them. He also describes how strict regulations, combined with a monopolised and protectionist system, have made it almost impossible for foreign competitors to enter the Swedish construction market.

Unterrainer further argues that there must be a willingness to be subversive and challenge the regulatory framework in order to create more architectural quality. A notable example in this regard is the German architectural practice Brandlhuber+, who have used transformation as a tool to create new opportunities for architectural qualities - something Unterrainer highlights as particularly valuable.

Example: Antivilla by Brandlhuber+

In the project Antivilla, Brandlhuber+ transformed an abandoned factory building into a residential house. Local regulations stipulated that the 500-square-meter disused structure could only be demolished and rebuilt with a maximum of 100 square meters of living area. Demolition would therefore have meant a substantial loss of embodied energy, both in materials and labor.

Instead, the architects chose another approach: preserving the entire building and making minimal interventions to enable its transformation into housing. The roof was replaced and a new core installed to support it, while non-load-bearing walls were removed.

To meet German energy requirements, the upper floor was divided into separate climate zones, each calculated individually. Simple underfloor heating was installed to meet the minimum requirements, and a sauna stove functions as an additional heating source. Transparent curtains can be drawn to create warmer zones while maintaining the building’s spatial openness.

Using these unconventional strategies, Brandlhuber+ managed to maintain a strong economic performance in the project, despite the building’s size. This demonstrates how architectural expertise combined with strategic subversion of the regulatory framework can make a project both economically viable and architecturally rich.

The discussion surrounding the new Swedish building regulations and projects like Antivilla illustrates the complex balance between regulation, architectural freedom, and building quality. While the architectural profession warns that overly flexible regulations could lead to poorer housing quality, there are also examples of how creative and subversive thinking can transform constraints into opportunities.

By challenging regulatory frameworks, Brandlhuber+ show that it is possible to create sustainable and economically advantageous projects where others see only limitations. This is yet another example of how architects, through their expertise, can be proactive and impactful.

To achieve truly sustainable and high-quality housing, both well-considered regulations and a willingness to push boundaries are required, always with people’s living environments and long-term sustainability in focus.

Antivilla, Brandlhuber +
Foto: Erica Overmeer

The Path Forward

In a sustainable housing project, economics and architecture should work in symbiosis, even though one is easily measured through numbers and calculations, and the other contains values that are less tangible.

In today’s housing production, banks and construction companies are the dominant actors. Architects’ roles are increasingly marginalised, reducing their ability to secure architectural qualities, especially when these qualities do not align with the financial interests of the other two major actors. As a result, in many projects, the immeasurable values and the measurable values are not prioritised equally. The problem is amplified by households’ weak financial capacity and the increasingly inaccessible housing and rental market.

It is evident that creating space for architecture in today’s housing production is crucial for ensuring a sustainable built environment, but the path toward this goal is difficult. Lowering construction costs is important, but focusing solely on cost-cutting risks undermining aspects that lack explicit economic justification even though they have significant importance for the quality of the home.

By rethinking required returns, using accounting practices that support long-term value, and enabling architects to proactively engage in development and transformation, the economic framework can be challenged. Though these strategies are steps in the right direction, major efforts and increased knowledge exchange between architects and other professions are needed to ensure that future housing meets both high architectural standards and society’s long-term needs.

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