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'Backward' rental market must be fixed: expert

Peter Vinthagen Simpson · 10 Feb 2010, 17:11

Published: 10 Feb 2010 17:11 GMT+01:00

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Of the eight comparable EU cities studied in the Swedish Property Federation (Fastighetsägarna) report, Stockholm stood alone as the city with a long waiting list. It was also the only city with a generally regulated housing system.

Currently, longer-term visitors to Stockholm are faced with two stark choices - buy a house or a tenant-owner apartment (bostadsrätt) or join one of the many long queues for a regulated apartment (hyresrätt). If neither option is viable, there also exists an informal "second-hand" rental market that offers sublets at something close to market rates.

The Local on Wednesday spoke to Hans Lind, a professor of housing economics at the Royal Technical College (KTH) in Stockholm, Pär Svanberg of the Swedish Union of Tenants (Hyresgästföreningen) and Eric Clark, a professor in human geography at Lund University, to hear their views on the problem, and the solution.

What can be done about the situation?

“If you go overseas you can see that other countries allow for a broader market including the right to rent out tenant-owner apartments or their equivalent at market prices. This would help in Sweden, by creating a formal alternative rental market,” Lind argued.

Lind explained that the issue is so locked and the situation so entrenched that it is a question of applying ‘whatever works’ politically, but says that there is some compromise when it comes to newly-built apartments.

“You can usually get a new apartment within around a year. The rents are still regulated but the Swedish Union of Tenants are mainly interested in protecting existing tenants. With new tenants there is some compromise, but it does mean that rent levels can vary widely on the same street,” he said.

Pär Svanberg at the Swedish Union of Tenants concurred that in order to protect the centrally negotiated “utility value” system, a compromise was reached with property builders to allow for greater flexibility in applying “market-orientated” rents. He had little time for Lind’s alternative market solution, however.

“To suggest that a form of alternative rental market would solve the problem is just wishful thinking. The fact that expensive new apartments can be had within a short period of time shows that it is not only about price.“

“We all want it to work but both supply and demand have to be taken care of,“ Svanberg said.

While many see the problem of over-regulation and lack of market forces as the source of the mess, Eric Clark argues that it is in fact deregulation that lies at the root of the problem.

"It is due to the massive neoliberal trend that has swept Sweden in the recent decades. Most of the welfare state has been protected from it but for some reason the housing market has not," he said.

Does the political will exist to address the problems?

“Politically the situation is difficult to change. In some areas there will be high rent increases. There will be only losers, no winners, and no political party wants to take that risk if they want to win an election,” Lind said.

Pär Svanberg argued that politicians are only willing to address the high cost of housing for those buying their homes.

“The solution is to build more apartments. Current government policy instead subsidizes those that own their homes with mortgage interest relief and so on,” he said.

According to figures supplied to The Local by Eric Clark, in the decade from 1989-1999 the housing sector went from being a state expenditure of 35 billion kronor ($4.8 billion) in the form of direct subsidies, to generating some 31 billion kronor per annum.

"It has gone from a burden on the state to a cash cow to be milked. Somebody always pays," Clark said.

“If you raise taxes and cut subsidies then of course it is going to affect supply.”

Hans Lind explained that the system of regulated rents was introduced in the 1950s as a temporary measure and that now, almost sixty years later, the somewhat unique situation is very difficult to change.

“This should be about how we create an open market where people coming to the city are able to find an apartment on the internet and then move in when they arrive. In a modern city the current situation is somewhat backward,” Lind argued.

Defenders of rent regulation argue that the current system allows people of all incomes and classes to live in the inner-city. Can you see any advantages with the system?

“Only for those who happen to find an apartment. Now it is very much by chance, or for those with a lot of money and the right contacts, or after a very long wait,” Lind argued.

“To suggest that the regulated rental market fulfils a social function is just hypocrisy. Take Stockholm. Anyone can see that the rich live in one place, the less well-off somewhere else. There are very few areas where they are mixed.”

Eric Clark on the other hand argued that the rental market should fulfil a social function.

"It is a question of whether you see housing as a human right," he said.

The tenants union believes that the situation would be even worse if the market were allowed to determine rents.

“We would get the situation with social housing that you see in so many other European cities,” Pär Svanberg said.

Story continues below…

So does a regulated housing market encourage or work against segregation?

"We have a clear polarization of the cities. It depends on how we regulate," Eric Clark said.

“Sweden does not have any formal ‘social housing’ but there are deprived areas the same as anywhere else. The difference is the standard of housing - here it is generally quite high,” Lind said.

Hans Lind co-published a research study in 2003 entitled “Market rents and economic segregation: Evidence from a natural experiment,” in which income distribution in Stockholm is compared to Malmo, a city which has been gradually adjusting rents in inner city areas since the 1990s.

“There is no conclusive evidence either way whether the regulated rental market has contributed to Stockholm’s segregation along ethnic and income lines, but the situation has got worse over the past 20 years,” Lind claimed.

Pär Svanberg refused to be drawn on whether the housing problem had contributed to deeper segregation.

“Economists talk about insiders and outsiders. It is a lot more complicated than that,” Pär Svanberg said.

Eric Clark, Pär Svanberg and Hans Lind all agreed that Stockholm has a housing market with deep problems and that it is something of a special case that is difficult to understand for newcomers.

“We have visiting students at KTH who ring us up and say 'I’ll be arriving in a week, where can I live?' We have to tell them - sorry, this is Stockholm,” Lind joked.

Peter Vinthagen Simpson (news@thelocal.se)

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Your comments about this article

19:16 February 10, 2010 by Craptastical
OK, so the concern of introducing market rents is that existing tenants will see their rents shoot up immediately, and ultimately will be forced out.

How about this for an idea then, and I mentioned this is in comments for the previous article as well: Get rid of bytesrätt. If someone moves into another apartment give the landlords a choice: either keep the rent the same and put it into the queue, or make improvements/renovations to X standard to the apartment and you can introduce market prices for that apartment but to some pre-determined capped-level... taking into account not only the standard of the apartment, but also environmental factors, ie the view etc. That should alleviate the problems with rents spiking for existing tenants. Even with improvements it still has to go to the queue.

The bottom line is that when the apartments change hands they need to get back into the queue, and not be allowed to swap. This whole swapping thing is IMHO the biggest reason why it takes so long to finally land a place.

Eventually these landlords will learn that they're competing for tenants rather than the other way around and prices will stabilize. IMHO it also gives builders incentive to create new properties because they'll actually be able to invest in their property (improvements/remodeling, adding amenities etc.) in order to remain competitive and to make mid to long-term profits.
19:53 February 10, 2010 by conboy
How come there is no mention anywhere of crooked landlords and black market, appartment renting agents operating throughout Stockholm for a number of years now?
21:06 February 10, 2010 by CarlBlack
@Craptastical: Why should existing tenants be forced out? They will only move away if they find some more advantageous offer than from the current landlord.

If due to market prices it becomes profitable for a company to build a house just for renting, or for private persons to buy an apartment for renting to others, than one can soon expect an equilibration between demand and supply. That's how it works in majority of Europe.On the other hand, if someone is a tenant in apartment for a price that is insufficient to fund the cost of building the apartment in the long term then he in fact lives on the expense of others.
21:21 February 10, 2010 by Craptastical

I never said tenants *should* be forced out, I described what I understand is the concern of the people wanting to protect the government-mandated rents. As I understand it, the major concern of those who oppose market pricing are worried that tenants will have their rents raised to levels that they can't afford, essentially forcing them out of the apartment.

What I did say is that they should no longer have the right to trade apartments with someone else. If they find another apartment then their old apartment should go back into the queue and not directly to a new tenant. Also I suggested a way to either keep the rent the same *or* if the landlord choses, to make improvements to the apartment to the day's current standard and then be allowed to raise the rent to market levels. In other words, give the landlords a way to invest in their property in order to make a larger profit, or stay at the same levels of income that they are current at.
09:04 February 11, 2010 by bjinger
unbelieverable restricted rights in renting apartment
09:50 February 11, 2010 by Alannah
Sorry but the whole rental property market in Sweden reminds me of something from the Communist era. I still don't understand why it is all so controlled and you are allocated an apartment somewhere in Stockholm where you don't want to live and you have to wait in a queue for it for years. How on earth can this system be allowed when Sweden is in the EU? Surely if you buy an apartment, you have the right to rent it out or do as you please with it as an owner, like in the rest of the world, bar maybe a few isolated cases. And surely as a tenant you have a right to rent a property without someone saying to you "OK you get this apartment here". This just baffles me.
12:26 February 11, 2010 by Craptastical

The queue doesn't quite work like that. The individual sits in a general queue of people waiting, it isn't until the individual expresses interest in an apartment that their queue time plays a role. So it's not really Bostadsförmedlingen who says "here's an apartment for you in this location etc., take it or leave it", they don't dictate which apartments you are eligible for, but your time waiting in the general queue does.

There are exceptions though... I think (just heard) that refugees are bumped to the front of the queue or something but I'm not sure. Can someone confirm or deny this please?
14:24 February 11, 2010 by rumcajs
@Alannah and everybody

"How on earth can this system be allowed when Sweden is in the EU?" What on earth does one thing have to do with the other? I am not communist and stop seing communism everywhere, but I do think the beloved "MARKET" shouldn't mess up with housing and/or health care. If you wanna make money out of something, so you have cars, clothes, decoration, entertaiment, etc. If you put the price you want for something basic like housing, tenants cannot say something like "nahh, it's too expensive and I don't realy need it" like with a car or a Play Station.

I live in Prgue now and it's a gorgeous city, but I'm fed up of so many people asking the 70 or 75% of my salary for a s**t hole and I have a quite "ok" salary. The flat where we live is ok, but I still pay quite a lot and took me nearly 1 year to find it.

Also, what they say in this research is just not right when they compare Stockholm with other cities (exept Berlin) because you cannot compare only the prices but the salaries and what you can buy with them. In Madrid (I mean Madrid, not a town near Madrid), the rent of a small flat is about the 80% of the famous 1000E almost everybody gets. So it ain't even cheaper than Stockholm. and even if it was, what can you do with 200E? In Prague most of people I know and know about get around 20000Kc (many get 15000Kc) and the cheapest s**t hole costs about 10000. With the other 10000 you can just live, but if any surprice comes out, you might eat only bread the last 2 day of the month so forget about fun.

Your "FREE MARKET" is making the whole Europe slaves of a mortgage (ours or our lanlords') who work to pay a roof and whatch TV. Sweden (and Germany) is one of the last places where you can still do something else cos the rent doen't take nearly the whole cake and you can still contact a private state if you are in a rush.
15:52 February 11, 2010 by Craptastical

OK, so let's say that rent is cheaper here. How long do you think it will take to get an apartment with cheap rent in an area you're willing to live in *in Stockholm*?

That's the *major* complaint. It took you 1 year to find a place to live. It takes *at least* double that amount of time here in Stockholm, and it the wait for a rental *in Stockholm* doesn't appear to change much even if the person is made of money.
12:37 February 12, 2010 by here for the summer
Although the are many people who have proper leases on apartments that they live in, many of the leases are being sold through the real lease holder is not the occupant. Given that a lease secured through the que is such a huge financial gift due to the regulation I wonder how much corruption is in the system. How many of the lease holders are people who have gotten through this queue by being connected to the process. The best apartment leases seem to have this right to rent sold for hundreds of thousands sek. Perhaps the local can look into this.
00:51 February 14, 2010 by Viviane Varan
At my honest opinion people can blame it on this or that, politics, swapping what have you, but the problem remains: not enough housing, it' s a physical problem,

pure math.

It' s not like the places are sitting empty but not available or is it ?

well if there are owners who just sit on appts without selling or renting,

maybe the same largesse afforded in NL to the squatters is to be considered

otherwise well building a twin copy of Stockholm not too far from it or something

would be a fun project, call it Stockholm 2 what a lovely idea
14:29 February 14, 2010 by glamelixir
The one year que to get an apartment is not realistic at all.

I think the system is interesting, I wouldn't change it for an open market as we have in my country. What I think it is lacking is control.

There are so many apartments rented in second hand ilegally by people that are just scared of losing them. Those should let the apartment enter the que.

As well as the black market and the "selling of a first hand contract" that is just unbelievable and unacceptable. So corrupt that my imagintion can't even grasp how does that exist in the so called rightgeous Sweden.

So, keep the system and implement stronger controls and penalties.

Apartment owners should also have it easier to rent out if they respect market price.
11:50 February 16, 2010 by Audrian
The rich do not have housing problem. They aggregiate in one or two localities for security reason or simply to be together with their tribe so to speak. The problems in hand is irrelevant for them except from the point of view housing business.

A free housing market could solve the problem of housing for the better off, e.g., high wage earners, while at the same time giving opportunity for housing companies to make money along the way.

The low income earners will be pushed to ghetos like those quarters where foreigners are living. Please know a free market for housing in US and Britain has not solved housing problem.

Stockholm is a small city, about 1/11 of London. The outskirts of the city are a few kilometers from the centre of the city. The solution to housing shortage could be building several rail links to the outskirts and build tall apartment buidings there. By the right incentive old and the retired people living in the centre of the city can move if that is a desired solution.
12:22 February 16, 2010 by Craptastical

How exactly does the US housing system work? Please explain it to me, because I only lived there for most of my life and... I was able to find a place to live *in the same day* on multiple occasions and in a couple of different cities, both large and small.

Yes, ghettos are there in the free market system, but if you've been in Stockholm long enough you'll realize that the Swedish system doesn't prevent ghettos either.
15:49 February 16, 2010 by here for the summer
The "rich" and students and anyone who needs an apartment fast do have a problem in Stockholm. You can't rent an apartment without buying a contract on the blackmarket or waiting an unreasonable amount of time.

Surly this blackmarket doesn't solve the problem just rewards crooks and fosters corruption. Sweden seems to have as many ghettos as the US in some ways worse. Like the rest of Europe the immigrants are outside the cities and not mixed with the Swedish population. In the US people live together all races and cultures. LA, San Diego, San Francisco, Arabs, Indians, Swedes anyone who wants to live anywhere can and does lives where they choose and can get a place in a month in any city in the country at high and low income.

The idea about a stockholm 2 .Who will invest the money to build it if they can't rent the apartments for enough money to pay for the investment? Does anyone take economics courses in Sweden?
00:33 February 17, 2010 by JonFrum
Rent control caused similar problems in New York City. People with apartments were "grandfathered" into them at below-market prices over time, while everyone else paid full market price. Over time, you had lawyers and bankers living in rent-controlled housing, paying a fraction of what a mailman paid for a non-controlled apartment. Whenever you do this kind of regulating, you get corruption, and the longer you regulate, the more you corrupt. And with rents limited to below-market levels, why should landlords invest in upkeep of the property? So certain people save money, while the rest live with market rates, and the housing stock goes to hell.
09:52 February 17, 2010 by brissiedan
Well said Jon Frum!

Market values are simply a true representation of reality. Any imposed regulations are, almost by definition, a distortion of reality and little more than wishful thinking by idealists. When you apply pressure to one point in the supply and demand equation through artificial controls, out it pops somewhere else in the form of corruption (money under the table), long waiting lists, and sub-standard housing. More controls will not fix this, it will just distort it further.

With unrealistic returns there is no incentive for a developer to undertake a risky building project, or to provide levels of amenity or luxury beyond the lowest common denominator. Thus the apartment housing market in Sweden has become a monopoly for the huge government subsidized housing companies (HSB et al) which naturally do not want any competition, so this is really a whole other level of sanctioned corruption!

Three things need to change for the waiting lists, housing shortage, and 'black market' in second hand rentals in Sweden to disappear:

1) The corrosive idea that it is somehow immoral for a property owner to profit from renting out their property must yield to an awareness that this is the reward for financial risk - it is simply a return on investment;

2) A large scale shift away from the 'bostadsrätt' coop format towards full ownership of apartments, where the owner is able to rent out their property if they like without time limitations or the need to provide "valid" reasons for doing so;

3) The DIY amateurish 'second-hand' rental infrastructure that exists today needs to evolve into professional property management services along the lines of what real estate agents offer elsewhere.

These changes would create a healthy climate for property investment in Sweden.

As the laws stand the shortage is perpetuated and the standard of new

apartments is kept low since quality is not rewarded with higher rents. Without proper market competition there is also little innovation and overall costs are higher.
04:39 February 18, 2010 by Marc the Texan
@ those talking about US ghettos.

US ghettos have always had more to do with culture, language and race rather than income. US ghettos no longer really exist in the way they did in the way Swedes might imagine. The suburban area where I grew up in Houston is now filled with immigrant families and you'd be hard pressed to find an English speaker in what might now be considered a bad part of town or ghetto. However, they are living in what were considered solid middle class homes in the 1980s and they aren't much worse for wear today. So many poor American kids today grow up in conditions that are as good as what I grew up in a generation ago. The so-called ghetto where my high school was located is now still predominantly black, but with a much upgraded housing stock and generally much improved in every way.

As for rent controls,

I think it is well proven that rent controls lead to neglect then degeneration then blight. The only way to prevent that is by subsidizing landlords while controlling rents for maintaining a ridiculous, unsustainable social agenda.

I could understand grandfathering some residents in for a period of time to ease the transition, but maintaining rent controls for the long term is a fools game and leads to lower living standards for everyone in the long term. Why is Sweden still even toying with this bankrupt policy? It has been a proven loser in the long term everywhere it has been practiced.

Sweden needs more new housing stock. Better, nicer houses in places it didn't exist before. If that's in the suburbs, then all the better. On another note, England's housing crisis is worse than Sweden's. Not for rent controls, but for lack of decent housing stock (new construction controls). Maybe the reason no one can build in England is because the country is just packed to rafters and all of Britain would be paved over if everyone were permitted decent housing.
03:40 March 1, 2010 by Davey-jo
Controlled rents shows the capitalists daren't charge the market rate because no-one could afford them. There would thousands without a home (and civil unrest) if rents were real and not artificially controlled. This is interference by Government for a good reason. It also protects landlords because they would have empty properties as no-one could afford their rents. Many tenants also get rent benefit from central government which guarantees landlords' income. Rent control is basic to modern society and if you do away with it be prepared for civil unrest on a scale that will shake the very foundations of your society. You have been warned.
16:14 March 18, 2010 by abaeterno
Build, build and then build some more.
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