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How do rent controls work in Sweden and why did this issue bring down the government?

How do rent controls work in Sweden and why did this issue bring down the government?
Newly built apartments in Stockholm. Only those constructed after summer 2022 would be affected by the current proposals. Photo: Fredrik Sandberg/TT
Why have proposed changes to Sweden's sacrosanct rent laws brought opposing parties together in their desire to bring down the government?

How does the rental system work in Sweden today?

Currently, Sweden has a system of rent controls. This means that rental prices are kept low, both when the tenant rents directly from the apartment’s owner (called a “first-hand contract” in Sweden) or when the “first-hand” tenant sublets to someone else. 

Although tenants who sublet can charge a bit extra to cover bills and furniture in these “second-hand contracts”, which are usually also strictly limited in time. 

The thinking behind this system is partly to ensure that people have access to affordable housing, so in general Sweden does not make it profitable to buy property to rent out, unlike many countries. Rent controls are a key pillar of Sweden’s social model, introduced by the Social Democrats after the Second World War and in theory they guarantee that even those on modest incomes can live in their preferred area.

A growing population, especially in Sweden’s larger cities, and a slow rate of construction of new homes, has led to a major apartment shortage.

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Because the market does not determine who has access to rental properties, instead it comes down to time spent waiting for first-hand rental contracts to become available.

This can often be a decade or more in densely populated areas, which means many people, and particularly newer arrivals to the cities, end up looking for second-hand contracts if they cannot afford to buy.

Even though in theory second-hand rentals should not be more expensive, there are two main reasons that tenants on these contracts often end up paying significantly more than those renting directly.

One is that the huge demand makes it easier for unscrupulous landlords to overcharge, and the apartment shortage means some people will accept to pay more rather than go through the process of finding a new home. One other reason is that people who own their apartments can sublet them at a higher price; although they are still required to charge a “reasonable rent” they may calculate this based on the current market value of the property. In city locations, that’s often high. 

Add to this the fact that there are tight restrictions on subletting, intended to stop people buying up properties to rent for profit, and the result is a very insecure situation for those people on the second-hand market.

So there are certainly problems with the current system, but there’s no consensus on how to fix them. 

What did the government propose?

The proposal that the Centre and Liberal parties fought to have included in their agreement with the government is to introduce so-called market rents, where landlords would be free to choose the price they set based on the market; in other words, based on demand and individual negotiations with tenants. 

The Social Democrats reluctantly agreed to look into introducing this for newly constructed apartments only, which today account for a tiny percentage of total housing stock. It’s worth noting that owners of new builds are already allowed to charge higher rents than many older buildings for the first 15 years (this is to cover the costs of the investment in the building), but these cannot currently be negotiated on an individual basis. 

One of the planned changes, as set out in the results of an inquiry presented by the government, is that location would play a bigger part in setting the price, so that housing in popular areas would go up in price. Rent would also rise each year in line with inflation. But it would be voluntary to introduce market rents, so it probably wouldn’t be the case that every new build would be subject to them — after all, this would rely on tenants being willing to pay them. The government also outlined plans to introduce further proposals that would water down some aspects.

At the moment, tenants can appeal if they think they are being charged an unreasonably high rent, and there have been many high-profile cases of tenants winning a refund. This would still be possible under the new system, but only within the first year after the rent was agreed, and the tenant would need to prove their rent was significantly higher than other similar apartments.

Who’s for, who’s against?

Market rents are a policy that appeals to the conservative parties in Sweden. The Moderates, Centre Party, Liberal Party, and Christian Democrats are all in favour, though the far-right Sweden Democrats do not support market rents.

The Social Democrats do not want market rents, but agreed to introduce them on a limited scale in order to get the support from the Centre and Liberal parties as part of the January 2019 deal they struck to form a government.

The government’s press conference announcing the changes highlighted their concern that the new system may incentivise landlords to terminate contracts with tenants if they can find someone who will pay more, and said that “complementary proposals” would be put forward in future to address this.

The Social Democrats’ junior coalition partner, the Green Party, has no strong stance on the rental laws.

For the Left Party, this is a core issue. They are opposed to the introduction of market rents and see the proposals outlined under the January Agreement as the thin end of the wedge. Ever since the government signed this deal with the conservative opposition, the Left have vowed to oppose any move to bring in market rents, and this week they made good on that promise.

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