STOCKHOLM (Reuters) - Despite its robust economic growth, Sweden is facing a housing shortage that affects rich and poor alike; immigrants are sometimes living five to a room and employees in the booming tech sector have also struggled to find suitable accommodation.

A woman walks past a housing block in the Husby suburb of Stockholm, Sweden, in this April 7, 2014 file picture. REUTERS/Ints Kalnins/Files

A housing shortage has sharply pushed up property prices in Sweden as well as in Norway and inflated Nordic household debt to the highest levels in the OECD. There are fears that a housing bubble could endanger financial stability in the region.

With more than a million refugees arriving in Europe over the last year, Sweden has struggled to reconcile one of the fastest growing populations in the European Union with some of the highest construction costs.

Many are paying the price.

“If I needed to go to the toilet in the morning, I would have to wake up one hour earlier for my turn,” said Jean, 48, who fled Syria three years ago. He moved with his wife and five children from one crowded apartment to another, sometimes sleeping 10 in two bedrooms, before finding a permanent flat close to Stockholm.

A report from Sweden’s National Board of Housing, Building and Planning said housing issues were harming integration of immigrants, worsening school results, leading to higher rates of crime and health issues like respiratory problems.

The lack of housing is also putting off businesses.

In Stockholm, where a one-bedroom “basement flat” with almost no natural light is on the market for 7.5 million crowns ($880,000) and black market rental contracts cost hundreds of thousands, the housing market was too much for German start-up Cuponation, an Internet company that helps consumers find discounted goods.

EXCEPTIONAL HOUSING SHORTAGE

Cuponation wanted to move its Nordic operations from Munich to Stockholm, joining music streaming company Spotify and payments firm Klarna which are both headquartered there.

“Stockholm was always the plan ... Stockholm is a huge and great startup city with a great startup community,” said Cuponation’s Nordic spokesman Lukas Ohlsson.

But around 30 people who would have moved will instead stay at the headquarters in Germany, Ohlsson said. “The housing situation is the main reason,” he added.

Housing shortages are a problem in much of Europe. Germany is feeling the effects of the scaling back of public investments in social housing and scrapped tax incentives have created a shortfall in construction.

With around 300,000 building approvals granted in 2015 versus an estimated need for more than 400,000 flats per year, the German government is planning to re-introduce some tax incentives and is doubling funds for social housing.

In Sweden, residential construction has lagged population growth for decades. “We do have an exceptional housing shortage”, Housing Minister Mehmet Kaplan said.

The center-left Swedish government plans to spend an additional 6 billion crowns next year on boosting construction while building regulations - which allow appeals of zoning plans that can cause delays of as much as 10 years - are to be simplified, he said.

Sweden, with a population of 10 million, needs to build nearly 500,000 homes by 2020, said Kurt Eliasson, head of the Swedish Association of Public Housing Companies.

Eurostat data shows Sweden has the EU’s highest construction costs, topped only by EU outsiders Norway and Switzerland.

LACK OF SOCIAL HOUSING

The absence of social housing for people with low incomes represented another problem, Eliasson said. “We are an exception in relation to other European countries,” he said.

A regulated market where rents are decided in negotiations or by courts rather than supply and demand means there is little incentive for construction. The wait in Stockholm’s public queue for a rental in the inner city averages 13 years.

This has fueled a black market where a rental contract in central Stockholm typically costs 200,000 crowns ($23,500) per room to buy, a newspaper report showed.

Organized crime is expanding in the market, said Kristian Halldin, analyst at Stockholm’s police intelligence unit. He wrote a report on the issue after several killings last year where victims were involved in illegal rental contract trades.

For owner-occupied housing, Swedish prices have doubled in the past decade, inflating what many see as a bubble. Up 13 percent in the second quarter of 2015 from the previous year, house prices have risen at the fastest pace in Europe, Eurostat data showed.

Policy-makers in Sweden and Norway fear excessive lending linked to the rise in house prices spell risks for the economies as well as for individual households, possibly spilling over to neighboring Denmark and Finland.

Measures to handle the issues are urgent, said Sweden’s Central Bank Governor Stefan Ingves. “The problems in the housing market are basically getting worse because we haven’t really shown in Sweden the ability to deal with these questions properly,” he said last month.