Commercial companies are wary of investing in the type of inexpensive rental apartments student seek, as the profit margin is considered too low by many of the builders.
"Those who survive on student grants and loans cannot pay for newly built housing," Palm tells Swedish Radio.
An extension of the existing credit guarantee scheme is one proposal.
"What's available today hasn't resulted in more housing being built," Palm says.
The Swedish Construction Federation is sceptical about what kind of impact revising and possibly adding more funding to the scheme would have.
"This is actually a bit similar to proposals put forward before from the Social Democrats," says chairperson Björn Wellhagen to Swedish Radio.
"Then you called it 'investment support', now it's been dubbed a 'building bonus'," he says. "I think they haven't quite thought this through."
His federation would instead like to see more freedom in how they set the rent of new apartments. Their reform wishlist also calls for improved infrastructure in the suburbs where a significant share of new construction is taking place.
They have also asked that the authorities speed up the process whereby building permits are issued.
The Social Democrats working group will present its full set of proposal to the party congress in April.