Among other things, the report suggests that supply and demand play a role in setting rents in Sweden, and that public municipal housing companies shouldn’t have control over the rents set by private housing companies.
“Our mandate was to consider whether the rent-normative role of municipal housing companies should continue. That task included both creating the conditions for an efficient rental housing market and safeguarding meaningful tenants’ rights,” says the report.
Entitled “The EU, the public good, and rents”, the report concludes an inquiry ordered by the former Social Democratic government in 2005 to explore changes to how Swedish housing corporations operate to ensure they don’t run afoul of EU rules on state aid.
While the underlying motivation for the report may have been a bit esoteric, the findings have sparked a furious debate about how to best organize Sweden’s unique utility value-based system for allocating rental housing, which relies on rents set by collective bargaining.
“One wonders what happened to tenants’ rights protections. Many will be forced to move if this becomes reality,” said Barbro Engman, head of the Swedish Union of Tenants (Hyresgästföreningen).
The Union’s own calculations find that the government’s proposal would raise rents by 150 percent in some cases. It sees the proposal as an attempt to introduce market based rents through the back door, using EU compliance as a cover.
“This is a new type of market rent. It just takes a little longer,” said Engman.
“It’s important to know that the requirement for a demand-driven system of setting rents put forward by the proposal is not an EU requirement.”
While stopping short of introducing market-based rents explicitly, the report’s suggestions attempt to introduce a more market-oriented approach to setting rents in the hopes of better matching supply and demand.
Under the current system, rents are generally set by collective bargaining between the tenants’ union and property owners, rather than by market forces. Potential renters then register their interest with one of several municipal housing companies which own and manage the majority of rental properties in a given area.
Once registered, those seeking rental housing can then express interest in various rental properties which become available. A ‘queue’ of interested parties then forms for any available unit. Whoever has been in the queue the longest is given first crack at signing a new rental contract.
In highly popular areas like central Stockholm, would-be renters often need to wait years before coming to the front of the queue.
In order to reduce the likelihood of long queues and bring demand more in line with supply, the report suggests allowing rental increases of up to five percent a year in areas with excessively long wait times for rental units. Similarly, in areas where supply exceeds demand, rents could also be lowered in order to entice people to fill vacant units.
The Swedish Property Federation (Fastighetsägarna), which represents Sweden’s property owners, welcomes the proposals, believing they are a step toward correcting inefficiencies in the market.
“Finally possibilities are opening up for tenants and those seeking housing to get the apartments they demand,” said Federation head Per-Åke Eriksson in a statement.
In addition to long queues, dysfunction in the rental market has also led to widespread black market deals, increased conversion of rental units to cooperative building societies (bostadsrättföreningar), and a lack of new rental housing production, says Eriksson.
“Setting rents in a more rational way increases the possibility for the building of rental units where demand is high,” said Eriksson.
But Social Democratic Party Leader Mona Sahlin was quick to criticize the inquiry’s report.
“The right thing for Mats Odell to do would be to toss the inquiry in the rubbish bin,” she said in an open letter to the housing minister.
In condemning the proposal, Sahlin pointed to the tenant union’s calculations that projected rental increases of 20 to 50 percent throughout most of Sweden, and between 50 and 150 percent in large cities.
She also accused the government’s housing policy as having a double standard when it comes to renters versus homeowners.
“If the area where someone lives becomes more popular, the rent will increase. That is the same principle behind the earlier real estate tax–but with the big difference that those who lived there [and owned their homes] saw the value of their private assets rise,” she said.
“That system has been called immoral by Mats Odell’s party leader. How can something that is immoral when it pertains to houses be moral when it pertains to renters?”
Sahlin accused Odell of only listening to property owners, and encouraged him to instead gather together all interested parties.
In a Friday press conference, Odell tried to dampen concern over what impact the new rules may have.
“Market rents are not going to be implemented in Sweden. And no one is going to need to leave their home because of a change in how rents are set. Housing security is an important principle,” he said.
The proposal will now be subject to review and comment, and still has a long way to go before becoming law. According to the report’s authors, the earliest possible date for implementation of the changes would be January 1, 2010.