The Swedish housing market have long been debated for its flaws, inefficiencies and regulations which makes construction expensive and complicated. This have created long queue times for rentals and an ever increasing price level for condominiums, especially in the cities Stockholm, Gothenburg and Malmö. Boverket suggest 558,000 new housing units  eeds to be constructed by 2025 to meet the increasing demand. In this thesis I have applied the standard theory of demand and supply on the Swedish housing market using a standard simultaneous equation model with panel data covering the years 1994 to 2012 over Swedish municipalities. The result shows construction costs have a negative effect on supply while population growth and housing prices have a positive effect. Demand is driven by disposable income and population growth whereas a price of housing has a negative effect. With lower future construction costs housing supply would increase more than if it were to be hold constant. Rising construction cost the coming years would have a negative effect on housing supply.