Why so silent on rental reform?
The Local is not responsible for the content of blog comments.
Looking at the reports in the Swedish media on the OECD report into Sweden’s economy, you would almost think that it made no criticisms. Indeed, the report is positive in many aspects, and praise is heaped upon Sweden’s government for its efforts to cut taxes and keep discipline in the public finances.
But the report also lists areas in which Sweden should do better. In fact, it names two ‘key challenges’ – the exclusion of immigrants from the labour market and housing reform – particularly the reform of the restrictive housing rental market.
While the labour market issue is mentioned in Swedish reports, as in this DN article, the criticisms of the housing rental market are barely reported. Given that the report makes a good case for there being a problem (pointing out, for instance, that there are 10 year housing queues in Stockholm), one has to wonder why the Swedish media is so reluctant to take up this important issue.
Are the middle-class journalists and politicians, who the report makes clear are among the main beneficiaries of rent controls, afraid to bring up the issue for fear it might actually lead to reform?
February 24th, 2007 at 1:28 pm
Perhaps the silence is because following the advice of the OECD would cause more problems than it solved.
As so often happens with economists, those at OECD are only looking at half the picture. Reform could go badly wrong, as happened in Britain in the 1950s when rent control was abolished by a Conservative government and the result was large scale eviction and the homelessness which continues to this day. Landlords exploited the situation and we had what is known as Rachmanism, named after one notorious landlord; another notorious and more recent case is the landlord Hoogstraten.
If rents are not allowed to rise to current market values, economic theory predicts that a secondary market will develop, legally or otherwise, which is exactly what can be observed and is what OECD is criticising. But if rentals are set at market levels and no other measures are taken, then those market levels will rise to artificially high levels as landlords will keep a lot of property empty and off the market whilst attempting to find tentants who will pay the extortionate rent.
The only way round this problem is to liberalise rents, and at the same time, to introduce a property tax based on the land value element of the rental value – such a tax to be based on current rental values and paid annually.
This is known as land value tax (LVT); potentially, it could raise very large amounts of revenue, thereby enabling other taxes, for example, on labour, to be cut or even abolished.
About land value taxation