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'Egalitarian' Stockholm rents feed black market

AFP · 30 Aug 2010, 16:38

Published: 30 Aug 2010 16:38 GMT+02:00

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The catch was steep. To lay his hands on the rental contract, the 36-year-old engineer had to pay a whopping 130,000 kronor ($17,000) under the table.

"It's unfortunately the price to enter the system in Stockholm," he said, asking that his last name not be given for fear his contract would be revoked if his black market dealings were revealed.

In the Swedish capital, an egalitarian-minded rental system put in place more than half a century ago to help erase social differences by permitting rich and poor to live side-by-side in the centre of the city has a very large flipside.

The publicly regulated system has created a flourishing black market for aspiring tenants willing to dish out huge sums to skirt multi-year-long waiting lists for a rental contract.

"I don't know anyone in my building who got his apartment through the queues," Johannes said, sitting in a large living room overlooking a well kept courtyard in the heart of trendy Södermalm.

Virtually the entire Stockholm rental market falls within various queue systems regulated by the municipality. More than 300,000 people are currently waiting in line for a rental contract in the capital, a city of around 2 million inhabitants.

Taking part in the system requires more than a small dose of patience.

"The waiting times have been largely stable, around four years for an apartment in the suburbs and around 12 in the center," said Per Anders Hedkvist, who heads up Stockholm's Housing Service (Bostadsförmedlingen).

The public agency controls about 85 percent of all rentals in the Swedish capital. It and other queuing services aim to keep rents stabilised and ensure that apartments of the same size and standard cost the same, regardless of their location.

Seniority on the waiting list, not wealth or social standing, is the only criterion determining who gets in. While this may sound utopian in theory, critics claim that the system has given rise to acute housing shortages and an enormous underground market for such coveted "first-hand" contracts.

Once in, "first-hand" renters are entitled to hold onto their contracts at a fixed low rate basically forever, to swap contracts, or apartments, with anyone they wish inside the system and to purchase the flat at a very advantageous rate if it is ever put up for sale.

As a result, renters who finally land an apartment in a plush location are rarely willing to give them up and hand them over to the next in line, even when they decide to move.

Instead, many opt to sublet and make a bundle under the table -- where they are not subject to controlled rents -- or, as in Johannes's case, "sell" their contract to the highest bidder.

The housing lists may be long, but proponents of the system point out that anyone over the age of 18 with a Swedish social security number can queue up.

By planning ahead, residents can secure a long-term, low-rent apartment when and where they need it with no threats of sudden rent hikes or evictions.

However, for students and workers moving into the capital from elsewhere in Sweden, immigrants to the city and foreigners passing through for a few years, it is a different story.

Not able to wait for years to land a place even in the outskirts of town, some take up a mortgage to purchase a place outright, but most are relegated to the treacherous "second-hand" market, bouncing from short-term sublet to sublet and handing over bundles of cash under the table.

Cecilia Bonde, a 27-year-old hotel receptionist, says she for years has been moving between sublets that rarely last longer than six months at a time, with short-to-no notice and rents up to double what the "first-hand" contract-holder is paying.

"I have lived here, here. And here. Oh, and there...there, and there," she told AFP, pointing to at least 15 different locations on a map of a single Stockholm metro line.

Story continues below…

Despite its egalitarian intentions, the system, critics say, contributes to a certain level of segregation: a recent study by the Swedish Property Federation (Fastighetsägarna) showed that people living in the city centre have higher incomes than renters in the suburbs.

"Stockholm is a closed market," federation spokesman Henrik Tufvesson said, pointing out that while this might be beneficial for native residents, newcomers suffer.

"The system has some adverse effects [like the fact that] it's difficult to get in...that grandparents pass on the contracts to their grandchildren or that there is a black market," acknowledged Hedkvist. "At the same time, there's a big advantage: nearly everyone can afford renting an apartment in Stockholm."

According to studies, rents in the city centre would likely skyrocket between 40 and 50 percent if the rental market was liberalised. If that happened, "Some people could not afford anymore to live in the center," Hedkvist pointed out.

However, Tufvesson refutes that argument.

"The rich already live in the centre," he insisted.

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Your comments about this article

23:56 August 30, 2010 by dizzymoe33
I am so surprised that there is such a housing shortage. Why won't they just build more apartments to ease this problem?
12:45 August 31, 2010 by Britswedeguy
Stockholm is built on an archipelago - more building is problematical, not only does it involve building flats but also putting the supporting infrastructure in place - roads, rail, water, power etc.

The native Swedish population has been 8 million for decades, the growth has come from outside and the children of immigrants - the 'New Swedes' - who tend to have larger families.

Every apartment I've rented in Stockholm has been second-hand and every one of them has been from an immigrant.

These are all facts, I'm not blaming immigrants or immigration itself but this is obviously a serious element in the equation.
17:20 August 31, 2010 by Vetinari
@ dizzymoe33

Swedish construction standards and regulations make it un-economical to build cheap apartments.
21:12 August 31, 2010 by planet.sweden
Stockholm = Lagos of the North?

The state of capital's housing market is the elephant in the room as regards

Stockholm politics yet its not something the parties are keen to talk about.


Because as a rule it's Swedish voters who are profiting from the system and foreigners who are paying them. A chronic housing shortage is a nice little earner for Swedes, and as a quick scan of any of the rental websites will show, Swedes are proving themselves to be every bit as greedy and dishonest as the rest of humanity. What with this and the rampant insider trading prevalent in the Stockholm stock market pretty soon the Swedish capital with have a well earned reputation as the 'Lagos of the North'.
23:57 August 31, 2010 by GefleFrequentFlyer
The more you tax and regulate, the more of what you are seeking goes under the table.
01:22 September 1, 2010 by Toonie
I'm astonished the situation is the same as when I lived in Stockholm in the 80s. Planet Sweden has it right about housing being the elephant in the room. Imagine how many millions change hands under the table during a year. How many bank loans young people have to take out to rent a place. One of the problems seems to be that those paying 'key money' under the table are breaking the law as much as those receiving it. So everybody keeps schtum. In the UK in the 50s there was a law passed against 'key money', but ingeniously it did not criminalise the payer. In fact the payee could ask for the money, and only broke the law on receiving it. This meant that a tenant could gain access to a property and then stop the cheque to the receiver, pointing out that they didn't want the receiver to end up in jail. Can't see it happening in Stockholm. Too many snouts in troughs. And has Bostadsformedling finally cracked down on those who buy properties but never remove themselves from the list? I knew several people who boasted of eventually getting a second, rented property to use as an 'office'. One or two journalists as it happens. Which may also explain why it's difficult to change anything.
12:57 September 1, 2010 by here for the summer
Good points everyone. I thought it was just the left who supported this program but I seems like many bad policies that it is economically unsound but nobly aimed leftest policy to start followed by an interest group to keep it alive.
16:16 September 2, 2010 by eppie
I understand the point of view of the swedish government to instead of the amount of money you have let the time you are waiting decide who gets to live where so I don't want to complain about money below the table, etc.

The main ideological problem is that especially in a capital like Stockholm, people move in and out, stay for a few year and leave again. When you put yourself on the list when you are 18 for an apartment in the center it means that on average you will get it when you are 30 years old. And most people don't know where they will be living in 12 years.
00:38 September 3, 2010 by Toonie
The principle of allocating housing to people in strict rotation according to how long they have waited is admirable. The problems arise when any authority introduces exceptions and begins to give certain groups priority. This allows individual administrators 'flexibility' and you start to get a skewed system. In the worst case scenario you get corrupt officials favouring certain applicants. There was a case in the 80s when two Bostadsformedling officials were detected - interestingly because a happy recipient of a flat blurted out the news at a party in Stockholm and upset other partygoers who'd been on the list for longer. Then there's the other sort of corruption - the belief by officials that they can favour applicants and hinder others for whatever whimsical reason.

Mobility of people in and out of the city is certainly a problem, but so is inertia. Those who were lucky enough to have been born inner city kids in the 60s and 70s, when large parts of the inner city weren't fashionable, let alone expensive, realised by the 80s that if they sat tight they were onto an easy winner. They were the ones who could stay put or move as they wished, so long as they didn't give up their 'right' to a flat. If they moved in with a partner or spouse, they'd never give up their own flat if they could possibly get away with it. I even came across people who were advertising their flats to visiting business people at ridiculous weekly rents. Then there are parents hanging on to the rights so that their children can grow up and inherit them. I knew one couple who between them had the 'rights' to five flats in the inner city, subletting four of them. They saw nothing wrong with this. On the contrary it was all part of being smart. What surprised me was that the Swedish authorities gave the impression of knowing virtually everything about its residents, but couldn't detect the blatant flouting of rules right under their noses. I concluded there was no will to change anything much. Make an example of a few people, crack down here or there, but essentially turn a blind eye. In the 80s trying to get Bostadsformedling to face its responsibilities was like herding cats. Sounds like it still is.
00:59 September 3, 2010 by dizzymoe33
Thanks for explaining the housing system better to me. And why you can't build more housing in Stockholm.
14:48 September 3, 2010 by CarstenTM
Some areas of Stockholm are full, sure, but that's only a small part of the problem. Not everyone can live in SoFo or Gamla Stan. But that doesn't explain why even the suburbs take years of waiting.

It's as planet.sweden says. The voters (well, most of them, anyway) benefit from the situation as it is. A congested rental market makes rental contracts and apartments/houses a prized commodity. Even assuming nothing underhanded is going on, noone would be happy to suddenly see their house suddenly devalue by 10-20%.

Student housing might be slightly better (in terms of waiting times) but it's still impossible for new (foreign) students to find housing for themselves, especially now that (last I heard) universities no longer guarantee housing for their foreign (exchange) students. Waiting times of 3-4 years are not unheard of for the better accomodations, and even a simple room in a corridor will require waiting for the better part of two years.
05:04 September 4, 2010 by engagebrain
Why don't the real owners of flats check that the person living in the flat is actually the one who holds the primary rental contract ?.

Given the size of the problem it would be easy to evict the original tenant, who no longer lives there, and free up the Stockholm rental market. The primary tenants benefit and everyone else looses - high rents, low mobility.

Are incomes from second hand rental contracts declared for tax ?

There is a fundamental corruption that goes deep in both the Swedish rental and job markets.
20:47 September 4, 2010 by eddie123
thjis is a serious issue that needs to be addressed one way or another. i onced resided in stockholm and we subletted our apartment from an immigrant swede who had bought a new place but kept the public housing all the same. and the same situation was rampant within the neighbourhood.

years later, one of my peers was lucky to get his own place but relocated to the USA within six months. not surprisely, he still maintains his contract four years after he left sweden and sublets the apartment. this is rather unfortunate but some how, it persists unchecked.

it appears the housing agencies are more interested in getting their rents paid on time and less interested in who actually lives at the house. it is not uncommon to find students renting a room in an aprtment and paying almost half the rent for the entire apartment.

of late, i figured it was best to buy my own place than to continue renting second-hand.
11:37 September 5, 2010 by cogito
There are plenty of empty apartments in Stockholm. The owners would love to rent them out.

Soviet-like rules prohibit owners letting their apt. for longer than a year. Nor may they charge a rent that the state considers high, even if the renter can easily afford it. Moreover, if the owner rents out the apt without the condo association's permission, the apt may be sold by the condo association agains the owner's will.

As for the official government housing association, it is famously rife with corruption: offspring, friends and relatives of high bureaucrats and politicians are mysteriously moved to the head of the queue.
19:42 September 7, 2010 by Just_Kidding
Mr gorbachev, tear down this wall...
18:12 September 8, 2010 by here for the summer
The current system doesn't do what they wanted . Rich people can move anywhere in the city cheaper than buying now and poor people are locked out . Just that a few cheaters and government workers get rewarded and no new housing is built .
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