‘Backward’ rental market must be fixed: expert

The wait for a rental apartment in Stockholm averages 104 weeks, rising to as much as 20 years for attractive areas, according to a new report published this week.

'Backward' rental market must be fixed: expert

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.

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.

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Moderate party’s mortgage pledge ‘would harm Sweden’: Riksbank chief

The head of Sweden's central bank, the Riksbank, has warned that suspending rules forcing banks to demand mortgage repayments from borrowers -- something pledged by the parties forming Sweden's next government -- would be "damaging for Sweden".

Moderate party's mortgage pledge 'would harm Sweden': Riksbank chief

All four of the parties backing Moderate leader Ulf Kristersson as Sweden’s next prime minister said in the run up to September’s election that they would either suspend or reduce the so-called “amortisation requirement” once in government. 

But in an interview with the Aftonbladet newspaper, Stefan Ingves, who steps down as the bank’s governor at the end of this year, said that the measure would be poor economic policy in the current inflationary situation. 

“This is an inappropriate measure which would harm Sweden if you did it,” he said. “You’ve got to understand that we have enormous amounts of mortgage debt in the Swedish economy and that the mortgage market represents a risk for the economy.” 

“It would send an extremely unfortunate signal to say that as soon as it gets a bit more expensive to borrow, then you should stop amortising [paying off the interest],” he said.

Ingves’s statement came as Erik Thedéen, the general director of Sweden’s Financial Supervisory Authority, also criticised the proposal. 

“To use the amortisation tool in the same direction as during the pandemic would quite simply be a wrong measure,” he told Sweden’s state broadcaster SR in its regular Saturday interview

He said that if the new government wanted to help those who risk personal bankruptcy as a result of rising interest rates, there were much better ways of doing. 

“Only half of households have mortgages, and they typically have fairly strong finances,” he said. “So if we want to help those with the tightest margins, then this is an extremely poor measure, when there are a lot of better measures you could come up with when it comes to finance policy.”