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'Market rents won't solve Sweden's housing woes'

The Local · 19 Nov 2013, 17:00

Published: 19 Nov 2013 17:00 GMT+01:00

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The Swedish rental market is different from those in other countries. Sweden does not have market rents combined with social housing.
A recent report from Swedish National Board of Housing, Building and Planning (Boverket) has aroused a great deal of interest by arguing in favour of market rents, a topic that is both highly charged and politically complex.
The Swedish rental market is basically open to everyone. Rents are set through negotiations between landlords and the Swedish Union of Tenants (Hyresgästföreningen). Thus, the individual tenant has no responsibility for negotiating the agreements' contents or any rent hikes. Tenants can, however, appeal the rent, a sign that consumer protections in the rental market are strong.
Much has been said by international bodies about the deficiencies in the Swedish housing market. And the difficulty in finding a home quickly is an impediment to economic growth. The housing board report argues that if rents were higher, demand would decrease; that the housing queue would disappear if prices were high enough. Higher prices would force people to move to smaller homes and leave homes that were too expensive.
If the policy objective is to reduce people's needs, and actions, through high prices, it would be easy. As soon as a need develops, prices could be raised to reduce demand. By the same principle, boosting food prices would get people to eat less. High gasoline prices would prompt people to stop filling their cars with petrol. 
And why stop there? Waiting times at health clinics could also be reduced by hiking the cost of health care. High prices for alcohol would make people stop buying booze. Higher fares for public transport would reduce congestion in the metro system. But in all decisions, competing interests need to be weighed against each other. High prices for public transport, for example, means that people might travel by car instead. Price hikes will induce citizens to choose other solutions and consumption patterns.
Neighbouring Finland had a large rental market reform in the 1990s. There, 67 percent of residents own their homes. Meanwhile, 18 percent live in publicly owned social housing and 15 percent in housing subject to market rents. Flats in Helsinki subject to market rents are 40 percent more expensive than social housing. The question is, why is social housing needed? Why can't the free rental market solve the housing situation?
If the prices of rental units were to increase significantly by the introduction of market rents, demand for some rental properties decrease. But it would also be necessary to create a new market for social housing featuring public subsidies and a queue for housing targeting low-income households. Those who could would likely choose to own their own home in order to avoid uncertainty. Pressure on the market for owned properties would steadily increase and prices would rise. And despite existing demand for owned properties, not enough are being built. Construction companies benefit by leaving land unexploited.
The Swedish rental market model has taken a different path compared to other countries. The rental market is open to everyone. The spot market that exists in many other countries where individual consumers rent out single dwellings doesn't exist in Sweden.
In addition, the Swedish rental market consists mainly of a few large companies. Therefore comparisons with the rental market in say, Germany, where 60 percent of rental dwellings are owned by small private landlords with fewer than 15 flats, don't work. There's a difference between renting from other private consumers and renting from strong professional landlords where there is a supply shortage, which is the situation in Sweden today. The introduction of market rents in such a situation would, in practice, terminate existing consumer protections.
Proponents of market rents often make life easy for themselves and speak only of the benefits of the free markets: market rents will solve the housing crisis and increases the freedom of choice for consumers. But the fact is that all the countries that currently have an unregulated rental market also have a subsidized and regulated market that is controlled by politicians - social housing. Proponents of market rents should therefore consider the following questions:
Which citizens should we politicians single out as having the right to queue for these homes with lower rents? Should people be able to stay in them when they receive a pay raise? At what level should politicians set rents?
In Sweden, politicians don't set rents; they are set via negotiations between the players in the housing market. This model has likely contributed to the stability and growth in value for rental properties. If market rents are introduced, that means we also need to introduce social housing, something we in the Liberal Party (Folkpartiet) housing policy group oppose. It creates lock-in effects and segregation and becomes to an obstacle to fighting social exclusion.
Politics is always a balance between particular interests. Will the Swedish rental model remain standing? With parliamentary elections less than a year away, the issue will certainly take on new urgency.
Ultimately, of course, it is the voters who decide.
Story continues below…
Nina Lundström
Liberal Party Member of Parliament and housing policy spokesperson

The Local (news@thelocal.se)

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