Sweden’s Prime Minister Stefan Lofven has lost a no-confidence vote making him the country’s first government leader ever to lose such a motion.

The vote, which took place amid a housing crisis and skyrocketing property prices, was initiated on Tuesday by the small Left Party – an ally of the minority government that is not in the two-party centre-left coalition but had provided the votes to pass legislation.

Plans to deregulate Sweden’s housing market because of accelerating price increases that took place during the pandemic are at the centre of a controversy that sparked the Left Party to lose confidence and vote against Mr Lofven.

Sweden has strict regulations on rents aimed at maintaining affordable prices in larger cities. But this disincentives property developers from building new homes for the rental market. People needing to rent a home can find themselves waiting for years for a contract, and buying property is increasingly hard amid soaring home prices.

However, the Left Party fears that deregulating the rental market will lead to rapid price rises and deeper segregation between rich and poor people.

It is unclear what will happen next in Sweden. Mr Lofven had said he wanted to wait for the outcome of the no-confidence vote and then “think through what is best for Sweden”.

Mr Lofven, who has been Sweden’s Social Democratic prime minister since 2014, said he would either call a snap election or become the head of a caretaker government.

He has one week to decide what to do.

Over the weekend, Mr Lofven held last-minute meetings seeking to secure a majority in parliament for his proposed rent reforms. On Sunday, he sought to soften the reforms by inviting landlords and tenant organisations for talks.

But the leader of the Left Party Nooshi Dadgostar stood by its decision to oppose Mr Lofven and said his effort was “a political show”.

“We have done something that is perceived as unusual in politics … kept our word,” she said.