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Feb 19, 2015

Swedish Rent Control experience a warning for Sydney

In response to suggestions that rent increases in Sydney should be regulated, guest writer Peter Vella discusses Sweden's experience with rent control. Be careful what you wish for, he cautions

Alan Davies — Editor of The Urbanist

Alan Davies

Editor of The Urbanist

The queue in years for brokered rental dwellings, Greater Stockholm. The Y axis is number of houses/dwelling mediated (brokered) by the housing service (the housings service acts as a matchmaker service). The x axis is queue time interval in years

Guest writer Dr Peter Vella is an Australian scientific researcher living and working in Sweden. (1)

Greens candidate for the upcoming NSW state election, Jenny Leong, recently floated a proposal to introduce rent controls in Sydney. If successful, it would place Sydney among other cities such as Stockholm, San Francisco and New York in having rent controls. In an environment of rising house prices, calls for rent control are only likely to increase. Rent control legislation aims to slow or stop prices rising to levels consistent with the prevailing demand for rental housing. To see where the road to rent control goes, my own Swedish experience is detailed here. Sweden arguably has the world’s most powerful rent controls and tenant protections.

Valkommen to Swedish Rent Control

In 2014 I left Australia to work in Sweden – little did I know of the difficulties in finding an apartment. Sweden is well known for ABBA and IKEA, but it should be more widely known as the land of rent control and nationwide mass rental housing shortages. Swedish rents are set by collective bargaining negotiations, something Australians associate only with workplaces. The Swedish Property Federation (landlords) and Swedish Tenants Association (tenants) sit down each year to decide how much rents will be, based on building, maintenance costs and the quality of the residence from the tenant’s perspective (the ‘utility’ value). Surveys and a points scoring system forms part of determining what the utility of different properties is.

Unfortunately, rents based on scoring property attributes are unlikely to properly reflect the demand for rental housing from other renters who are bidding the price up. If demand were properly reflected, there would be little reason to have the rent controls in the first place, as the final rents would resemble those without controls. The artificially lower prices under rent control stimulate extra demand while also weakening the financial incentives for developers to build. Add to this the valid need to protect heritage buildings, high construction costs, and opposition to medium and higher density buildings next to existing residents, and you have the perfect mess.

Stand in line… for the next decade 

Rent controls make finding vacant properties harder. Walking around Stockholm, one notices the complete lack of real estate agencies advertising vacant rental housing. Where do Stockholmers go to rent apartments? The answer is Stockholm City Council’s housing service. Incredibly, 430,000+ people are registered as waiting in this official housing queue system, and each year this queue grows longer. A Stockholm rental apartment typically involves a 7-8 year wait, and for popular inner city areas one can expect to wait 10 to 20 years. In 2013, one woman got an inner city Stockholm apartment after waiting 28 years in the housing queue. Housing shortages are not limited to large cities such as Stockholm, but are present all across Sweden. Indeed, 246 (84%) of Sweden’s 290 municipalities report a shortage of rental properties. This observation suggests rent control, among other factors, is an important contributor to Sweden’s crippling rental housing shortage.

As prices ultimately do not decide who should get a property, supplementary ways to decide are required. Stockholm’s rental queue system uses accumulated waiting time – the longer you wait, the higher priority your application will have. Vacant properties are generally advertised for a week, with the number of accumulated waiting points determining the priority order of your application. Once an advertisement closes, the property is offered to the first person with longest queuing time; if this person turns down the offer, the second person is contacted, and so on, until someone is found. The second exhibit is a screenshot from within Stockholm City Council’s rental housing queue system. The apartment on offer is inexpensive (SEK 5718/month, roughly AUD $220/week), which looks good until one realises there are 500+ expressions of interest for this apartment alone (see green box). My priority is 528 of 529, meaning I am at the bottom of the queue and have no hope of getting the place, despite the fact I can afford to pay that rent.

Finding a vacant rental in Sweden is a headache, and particularly so for university students, or businesses hiring skilled staff from outside the city or internationally. To prevent the Swedish rent control system collapsing under its own weight, a number of key relaxations are made. Firstly, tenants may legally sublet their apartments or rooms. Tenants will often sublet if they take work in another city, move in with a partner or take an extended holiday. Secondly, one may apply to queue for a short-term apartment – in effect, joining a waiting list for a ‘stepping stone’ property while waiting on the main waiting list. Ironically, this creates a pool of insecure sublettings and short-term accommodations, exactly the opposite of what security of tenure and rent controls are intended to achieve. Thirdly, separate queues are established and reserved for students, young people and the aged to shield these social groups from the intense demand for properties.

Powerful ‘lock in’ effects are created by rent control, which makes people unwilling to move, lest they have to queue again. To circumvent this, a relaxation is applied permitting two parties to barter (swap) their apartments, provided no money is involved. It is illegal to pay money for a swap, but such illegal payments are likely to happen anyway.

What could rent controls mean for Sydney? 

The ultimate effect of any rent control will depend on the details of the proposed control. Although some forms of rent control alone can create a housing shortage, rent control can also be adopted where housing problems already exist, worsening an already bad situation. It is not unreasonable to speculate that a Sydney rent control could encourage landlords to withdraw properties from the rental market and sell these to owner-occupiers, dramatically shrinking the available rental housing pool. Wealthy people can also bypass the problems associated with rent controls by simply buying their own property and living in it.

In conclusion, the problems of housing unaffordability are very real. Criticism of rent control should not be mistaken as a desire for a rental market free of all regulations, but seen as a clarion call to address the underlying lack of housing supply.

With rent controls, be careful what you wish for, you might just get it.

_____________________

  1. Dr. Peter Vella works on the development of new antibiotics against resistant infections at Sweden’s Karolinska Instituet.This article represents only the views of the author and not the views of the university.
Screenshot from within Stockholm City Council’s rental housing queue system. This apartment is SEK 5718/month and the applicant is 528th in the queue

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31 thoughts on “Swedish Rent Control experience a warning for Sydney

  1. Sam Tony

    Oh no! Developers won’t want to “invest”! How horrible! In my experience, most devolpers are egocentric spoiled children with only one desire – to make more money. These people need their heads checked.

  2. Alex %

    Yes, it is more difficult to find a first hand contract in Sweden’s bigger cities, however many people rent second hand, more often than not with greater security than with e.g. Sydney’s first hand contracts. In my experience, these usually do not stretch longer than 6-12 months before being served with a rent increase or the flat being put out for sale (There are several additional tenant rights in the Swedish rental system that would be welcome here). With the suggestion to remove rent control in Sweden, however, I wonder if any thought has been given to what this will do to diversity in the inner cities. It has up until now been a fairly equal playing ground. Who will be priced out of the city if the rent control is removed? What does it look like in Sydney? Who can afford to live in the inner city and who cannot?

  3. Alan Davies

    Alex Tabarrok at Marginal Revolution raises the issue of Rent control in Stockholm. Lots of comments.

  4. michael r james

    #26 M Bourne at 1:22 pm

    [Silicon Valley tends to only allow single family homes]

    In some suburban areas yes (and yes a lot of the place retains its suburban aspect) but not in more central areas. However everywhere they do have height restrictions and in this I absolutely agree with them, because, as I have proven mathematically on these pages, there is no reason to go hi-rise to achieve density. That is, contrary to the nonsense advocated by Ed Glaeser, Matthew Yglesias and AD; oh and every greedy developer everywhere.

    I agree with the suggestion by the Grattan authors (and M. Bourne?) that the anti-brigade need to be careful because they risk comprehensively losing the battle to hi-rise or rampant promiscuous development (like the rest of California), especially if those monsters like Google, Facebook, Apple etc start throwing their weight around politically. (Even as their multi-billionaire owners and top management choose to live in large estates in La Honda or Hillsborough etc.] But they are a bright bunch so we’ll see if enlightened planning wins the day: medium-rise (4 to 7 floors) TOD with LRT to service the tech areas. In fact San Jose has LRT but I don’t think it extends to Mountain View (Googleplex) or Cupertino (Apple Campus & Spaceship).

  5. michael r james

    In today’s Conversation by the authors of the Grattan Institute’s book published today, City Limits: (emphasis is the GI authors).

    [One in four Australian households now rent their home, and many face punishing rents and some of the worst security of tenure in the developed world.]

    Interesting table showing rental law in comparable rich countries.

    The article is a bit wishy-washy on what their suggested remedies are, though in general it seems like building more apartments in inner areas. Devil is in the details so I can’t really comment further. Except to provisionally agree, with the significant proviso that it must not be determined by developers or politicians under the influence of developers. Developers will make their profits no matter what is built but they should have zero political input (other than their single vote as a citizen).

  6. M Bourne

    24 (and 19 to some degree)
    The problem with San Fran isn’t just that it’s very difficult to build new dwellings (due to the citizen governance you mention), but it also has, drum roll, rent control… and Silicon Valley tends to only allow single family homes. Wealth disparity is a real problem, but rent controls are not the answer. Rent controls are a great for the few people that ‘win the lottery’ and benefit from them, but they distract from the longer term problem of too little housing being built where it’s needed, and too much being built where it’s easy (ie suburban fringe).

  7. Peter Vella

    As stated previously, 246 (84%) of Sweden’s 290 municipalities report a shortage of rental properties. Gotland Island’s population is more or less stable.

    The shortages are not limited to city areas but cover the entire country.

    The committee report states that only four percent live in a municipality where there is ‘excess’ housing. Any demolitions in such areas are stated as having occurred a decade to two decades ago, so are unlikely to fully explain today’s shortage, or shortages in areas far outside Stockholm. For example, Norbotten region has a shortage, this area is 600 km from Stockholm and no city within this region more than 75 000 residents. For comparison, Canberra has ca 360,000 residents, Darwin ca 130,000.

    Norbotten: http://en.wikipedia.org/wiki/Norrbotten_County

    Data collected by the Swedish Tenant’s Association also confirms that shortages are all over Sweden: http://www.hemhyra.se/riks/sa-lang-ar-kotiden-lagenhet-i-ditt-lan

    Waiting time for 1 bedroom apartment

    Region (time in months)

    Stockholm 56
    Uppsala 49
    Södermanland 14
    Östergötland 12
    Jonkoping 8
    Kronoberg 5
    Kalmar 20
    Blekinge 4
    Skane 21
    Halland 55
    Västra Götaland 26
    Värmland 27
    Orebro 43
    Västmanland 41
    Dalarna 10
    Gävleborg 14
    Västernorrland 14
    Jämtland 31
    Vasterbotten 38
    Norrbotten 35

  8. michael r james

    #23 Peter Vella at 11:35 pm

    From what I’ve read, Sweden’s small towns and outlying areas (presumably includes islands) are depopulating. Indeed the government has demolished tens of thousands of houses that were empty. Presumably this makes the government, not to mention property companies, loathe to invest in new housing in such areas. In time, youth leaving for the cities and oldies dying should solve their housing shortage!
    ………………….
    In today’s papers there were two more cases of this kind of problem that seems to be consuming our most successful human habitats around the world.

    The first article is provoked by the possible imminent demise of Lee Kuan Yew (91, hospitalized overnight with severe pneumonia) who created this odd example of paternalistic state-corporatism.
    [Singapore’s problems, while real, are ones most nations would kill for. Clean, safe and an important financial and manufacturing centre, it struggles to serve as a model only because of its small size. Yet there is a palpable sense of dissatisfaction among ordinary Singaporeans, manifested at the polls and in a lively blogosphere that is escaping the strictures of a strictly controlled traditional media. Many Singaporeans cannot afford sky-high property prices bid up by the city’s legions of bankers, stockbrokers and other professionals. There is a growing wealth divide.]

    The second concerns the perennial growing pains of Silicon Valley and the new Googleplex campus plans just released:
    [Google owns or leases about 680,00 square metres of office space in Mountain View, including most of the property around its headquarters. that has brought Mountain View loads of tax dollars and a 3.3 percent unemployment rate, as well as skyrocketing home prices and intolerable gridlock. …
    Google’s (new) headquarters proposal does not include any plans for housing. But the company has told the city council that it wants housing, and lots of it. Councilman Leonard Siegel agrees. He wants to amend the city’s plan to allow at least 5000 new housing units. That this could bring in even more Google employees is just what some people fear. “If you brought 5000 people in and they all work for Google and they said, ‘we want you to vote for this candidate,’ they can own the town” said a former councilman.]

    Last time I visited a tech company there (involved in the Human Genome Project) I met a guy who explained he lived in Oakland because housing was affordable there and his wife could get a job there–and the better compromise was for him to commute. So he drove the ≈80km across the Bay Bridge, thru San Francisco and down the peninsula every day. Which meant leaving home about 5 am and flexing off from work no later than 3.15 pm–because if he left it more than about 15 minutes longer he would get caught up in the horrendous “peak hour” traffic on the 280. Needless to say a lot of people who work there don’t last and eventually move away. (And in most such tech jobs most workers put in long hours and ad hoc finishing times, so I don’t quite know how he did it.)

    Of course the problem in Silicon Valley and all over the state’s hotspots is that their peculiar form of plebiscite-driven politics, larded with a dose of hyper-partisanship, has induced all kind of crises in California as I discussed here.

    The point is that these kinds of stresses are occurring all around the world under many different political environments. There are no simple solutions and what equitable ones may present themselves are often strenuously opposed by big business interests who demand all type of accommodations while increasingly starving governments of tax income needed to fund solutions. The laissez faire approach only “solves” such problems for a subset of people, ie. in an inevitable inequitable fashion, while adding to unsustainable urban environments (such as in the US SunBelt cities).

  9. Peter Vella

    As I demonstrated earlier, it is possible to see housing shortages on islands 170 km out to sea in a town with a population of no greater than 22 000 (i.e. the size of a small university) in 100% public non-profit housing with negligible migration and stable population.

    Immigration, speculation, population growth do not fully explain the presence of shortages outside Stockholm (Uppsala also has a shortage), and certainly not on Gotland island in the middle of the sea and far from any large city.

  10. michael r james

    Oh, and Peter Vella needs to be careful what he wishes for. As a relatively poorly paid scientist (like me most of my life), he will not be able to compete with those over-paid IT tech boys & girls for the nice and convenient parts of Stockholm. And even so he will end up paying even more of his meagre salary in rent if the free market brigade get all they want.

    Unless he wants to live in Uppsala where there might be less pressure? (It is an hour north of Stockholm, though I don’t know if it is any better.) I am a bit surprised the enlightened Swedes with the university & Karolinska in Uppsala don’t have some kind of housing assistance program, say like Columbia U and NYU in NYC do–which is almost the only means by which both students, post-grads, post-docs and even staff can live in their vicinity. A food friend of mine is in his forties as a professor at Columbia and he still lives in a Columbia apartment; has done for the 25 years I have known him.

  11. michael r james

    #9 scott

    [Don’t mess with the market.]

    You mean like the US housing bubble that the financial industry created by unregulated irresponsible lending. When it popped it almost brought the entire world financial system down. It needed a trillion dollar federal intervention to rescue this “free market” plus printing (QE) of US$4 trillion.

    Is that the free market we shouldn’t mess with, Scott?

    The reason rents in Australia and Sydney in particular (but ffs even Brisbane has stupid rents) are ridiculous is entirely down to the lack of regulation of our housing system. No controls on lending by individuals and regressive tax laws (negative gearing, low or no CGT no matter how many properties one owns) that encourages a property profiteering mentality that leads directly to hell. (with harbour views for some). And you’d have to be blind and very greedy to not see it as intergenerational theft. Of course the greedy just expect to be able to help their kids cope with a stratospheric unaffordable housing market that their generation created, but then that just leads to the kind of inequitable society Australia once claimed we didn’t want. Inherited wealth instead of equality of opportunity.

    I wonder just how much history we need to study to stop repeating the boom-and-bust cycle that always happens with unregulated or poorly regulated housing markets?
    I hope Sweden finds an equitable, balanced response and this is not just another lunge to the Right.

  12. michael r james

    That Swedish committee is proposing two approaches, 1. increase new building and 2. changing the rent controls (to encourage more ‘mobility’).
    The graphs show rather wild fluctuation in numbers of housing units built over the decades versus number of rentals. This is due to many things that appear to have created a perfect storm recently. The government abandoned building state housing (after a “million houses” program in the 60s & 70s) there has been a big relocation from outer areas into cities & centres combined with high immigration (the more recent tech boom is on top)–there have been tens of thousands of houses left empty in outer regions and small towns.

    Many (≈120,000) rentals have been turned into owner-occupied housing; though this obviously removes rental units from the market, it has been blamed on rent control, yet really the main thing is there has been no replacement building. They are blaming red tape for the slow building of new units; the solutions seem to be speed up approvals though none of this is very apparent to this reader. (Developers everywhere in the world claim there is too much red tape and everything takes too long.)

    Their summary of their hopes of the rent control outcomes is:

    [Re-adjustment of the rent setting process should therefore be gradual. We are laying out a socially responsible and politically feasible proposal for how to do that. The right of occupation of the tenants is safeguarded, and protection from irresponsible landlords is strengthened. It is estimated that the adjustment to fairer rents will take one to two years in most cities. In Gothenburg four to five years. Stockholm City Centre will take the most time – ten or more years. But after that, Sweden will have a rent system that no longer creates bad lock-in effects.]

    The devil is always in the detail but this claims that they are not just going to a completely deregulated system. (I can’t tell.) If “rent control” includes the changes suggested in that blog I reported in #7 then that does seem like a sensible change that shouldn’t disrupt equitable arrangements.

    Also, this is a report. It has to make it into legislation.

  13. Dylan Nicholson

    Scott, I don’t believe it’s healthy at all to have an entire suburb that is completely out-priced to a significant segment of the market. But you can bet existing residents there are going to fight tooth and nail against any proposal that relaxes building standards significantly enough to provide unsubsidised affordable housing.
    As to the *form* of the government assistance, I don’t pretend to know what is likely to work best, though I suspect price controls are best limited to temporary/unusual situations.

    @18, minimum floor areas probably are over-regulated, but even if the current standard was half what it is, I doubt it would spur significant development of housing cheap enough to be affordable to those currently dependent on government assistance. High-rise development is a big and risky investment, and there’s not likely to be much return in an apartment block complex that’s largely aimed at the very lowest end of the market.

  14. M Bourne

    16
    As house prices go up rents go up. Negatively geared landlords who have a property that is rapidly increasing in value will raise the rent as much as they can to increase their cash flow, as they do this, they become less negatively geared and more positively geared (less tax break, yes, but more income overall). If they want to remian negatively geared they can use their now inflated assets and income (from the increased property value and rental income from) to purchase MORE property.

    Obviously not every landlord does this, but a rental below market rate is very rare, and usually held onto very tightly by the lucky tenant (or has a landlord who says “if you expect me to fix x,y and z, prepare to pay significantly more rent).

    17
    If legislators (and NIMBY’s) weren’t so excited about mandating exessively large minimum floor areas per dwelling (or low numbers of beds per room) then people could (mostly) live where they want (without wasteful government assistance).

  15. Scott

    “It’s hardly just ‘want’ – in a rich economy such as Australia’s there’s no excuse for anybody not being able to afford somewhere comfortable and convenient to live, based on their job prospects, the location of their families, and their connection to the community in general.”

    Ahh…the age of entitlement. I can’t afford to rent in Balmain, so therefore, bring in the government assistance!

  16. Dylan Nicholson

    M Bourne @15 – where have you seen the argument that negative gearing pushes up rental rates? I’ve only see the argument that they push up property prices, but the nature of the law means the more rent charged the less advantage you get from negative gearing.

  17. M Bourne

    10
    Absolutely agree that the state needs to mess with the market to some degree (freedom for wolves is death for sheep), but not with price controls… as argued elsewhere in this blog (AD or the comments, can’t remember which) things like structural integrity and fire safety shoudln’t be left to the market to decide. However price controls are an attempt to fix a problem of over regulation with more over regulation. Absolutely terrible idea that allows some people to “win the lottery” and live in a desirable location for less than market rate while everyone that is paying market rate is paying exhorbitant prices due to the underlying problem of not enough supply!

    12
    People usually argue that negative gearing is part of the reason prices are high. And landlords charge what they can, not what they have to – if they had to charge more than they could then they’d have to sell or go bankrupt. Don’t get me started on negative gearing, it is an immoral perk that further accelerates the transfer of wealth from the asset poor to the asset rich (or at the very least, is a tax break for those who earn enough to rent their primary residence and purchase to let a secondary one), and encourages our shelter to be someones else’s investment vehicle.

    13
    Hahaha, what else should the peoples glorious central pricing committee dictate?

  18. Peter Vella

    This system is used in Sweden already. If the formula does not take into account the demand for said apartments from other renters, it may be acting as a price ceiling.

    An explanation how rents are set in Sweden:

    Comparable rent for a comparable apartment

    When we negotiate rents, we make sure your rent does not exceed the rent for comparable apartments. Service and maintenance are key components that are always factored into negotiations.

    Utility value

    Your rent is basically determined by the ‘utility value’ of your apartment. Utility value means that the rent should be proportionate to the quality and standard of the apartment. We think this is reasonable because it results in fair rents for everyone. The rent should reflect the general value that tenants assign to various characteristics of their housing. This includes things like the size of the apartment, number of rooms, floor plan, standard, condition, the housing environment, the location of the building, local services and the attractiveness of the area.”

    Source: http://www.hyresgastforeningen.se/In_English/Sidor/What-we-do.aspx

    Population Growth Does Not Explain Gotland Island Rental Shortage

    It is also interesting in the Gotland observation that the population of Gotland Island is not increasing and has actually decreased slightly since 1995. Therefore, the shortage of rental apartments on the island is not satisfactorily explained by population growth. See chart ‘Population trend 1945-2012’ on page 6 at http://www.gotland.se/1353

  19. john doe

    There should be formula for setting rental pricing. Measured by medium house prices for the area. Square feet,number of bathrooms, parking spaces etc. Which could be used to set rental pricing.

  20. Dylan Nicholson

    It’s hardly just ‘want’ – in a rich economy such as Australia’s there’s no excuse for anybody not being able to afford somewhere comfortable and convenient to live, based on their job prospects, the location of their families, and their connection to the community in general. If the market is failing to supply suitable housing at rental rates that everybody can afford, then it’s reasonable enough for the state to intervene, whether it’s by subsidizing construction of low-cost housing or ensuring that landlords are not taking unreasonable advantage of temporary rental property shortages.
    I’d think you could even argue negative gearing is a form of pricing control, in that it gives an incentive for landlords to charge less rent than they might otherwise if it weren’t for the tax advantages of the losses incurred while renting out a property (FWIW I’d rather see it phased out for established properties, but it’s a reasonable reward for developers who are investing in new housing supply).

  21. Scott

    No one is priced out of somewhere to live. People are priced out of somewhere they “want” to live…but that is hardly market failure.
    Governments should be involved in the legalities of the rental markets…setting up the minimum needs of contracts/ensuring protections for renters and landlords, but shouldn’t get involved in pricing. That should be left to the market.

  22. Dylan Nicholson

    Scott, markets exist and function because of state regulations and the stability provided by state-supplied services and infrastructure and state-backed currency, so it’s perfectly legitimate for them to adjust said regulations in an attempt to iron out perceived market failures. The problem is when those regulations get entrenched even when it’s obvious they’re not solving the problem they were set out to do, or at best solving them at too high a cost. The basic market mechanisms of higher profits driving development as needed can still co-exist with mechanisms to ensure nobody is priced out of somewhere to live.
    It may well be that rent controls are never likely to be an effective solution, but I’d rather have states ‘mess with the market’ as you say than the market mess with people’s livelihoods.

  23. Scott

    Surely this is just economics 1…you put a price ceiling on a good that is less than the equilibrium between the supply and demand curves and you get supply shortages…pretty simple.

    Rents should rise if there is a shortage of stock, as housing becomes more valuable. This in turn encourages investment (as developers start building, to take advantage of the higher rents) which as a result of the greater supply, reduces rents again over the long run. Also, if rents get beyond a particular level, beyond what the market can support resulting in substitutions to renting by themselves (people moving to other countries/moving back in with the parents/sharing house) then demand goes down, thus again reducing rents.

    Look at Sydney. Sky high rents have resulted in a massive investment in apartments over the last few years, meaning rents are now starting to come down due to the increased supply. This is how it is supposed to work.

    Don’t mess with the market.

  24. Peter Vella

    Greetings,

    Some observations and further reading links for those interested:

    Swedish Housing Crisis Committee Report.

    Recommends both building and gradual removal of rental controls.

    http://www.bokriskommitten.se/bokriskommittens-slutrapport-pa-engelska/

    Video:

    Price controls and Shortages. It is possible to create a shortage using price controls, and this is a well-known economic phenomena. The rent control could be acting as a price ceiling.

    https://www.youtube.com/watch?v=XgBPAucs-W4

    Research Paper:

    Elimination of Rent Control in the Swedish
    Rental Housing Market: Why and How?
    Roland Andersson (1) and Bo Söderberg (2)

    1 Royal Institute of Technology, Stockholm, Sweden
    2 Uppsala University, Sweden

    Journal of housing research, volume 21, issue 2

    “In Stockholm, as in other attractive housing submarkets in Sweden, rental housing is in short supply. People wait for decades for an apartment in Stockholm, and for several years in other cities. The most obvious reason for this shortage is rent control, introduced during the Second World War and still in force.”

    http://ares.metapress.com/content/xv120w45816v3344/

    Gotland Observation

    https://sverigesradio.se/sida/artikel.aspx?programid=94&artikel=4954890
    “Today there is not a single vacant apartment on Gotland.”

    The island of Gotland, Sweden is surrounded by sea and is 170 km distant from Stockholm. Visby (largest town) has a population of around just 22 000 (see Google Maps). There is plenty of land, and it is completely isolated from any large city. Yet the island has a massive shortage of rental housing and a five to seven year wait for an apartment.

    Speculation or foreign buyers doesn’t seem to explain the seven year shortage of rentals in Visby, because Gotlandshem – which provides apartments for rent – is a non-profit public housing company 100% owned by the local council. How do speculators, profits, foreign buyers etc influence a non-profit, local council-owned housing company to have such a shortage?

  25. michael r james

    Here’s some news I dug up. This seems somewhat significant though I can’t quite reconcile it with the other information on this issue. Incidentally this loosening is happening just as some cities are considering tightening up, mostly because Airbnb is causing some complaints from other occupants, including owners, of apartment blocks that seem to be turning into unregulated short-stay hotels. Not to mention taking money from the hotel market and depriving cities of tax income.
    (Emphasis is mine.)

    [(newcomers.se/more-rental-apartments-available-in-sweden/)
    MORE RENTAL APARTMENTS AVAILABLE IN SWEDEN
    Oct 14, 2014
    A much longed for improvement has finally been implemented by law. Anyone that knows anything about relocation to Sweden in general and housing shortage in Stockholm in particular will welcome this change. Building association can no longer deny an owner the permission to sublet an apartment if they have a reason. It has been difficult to say the least to rent out a flat for short or long term without a “valid” reason. Many buildings have routinely denied people the opportunity to let and therefore incurred unnecessary costs and thereby limited the rental. The Chamber of Commerce has fought an uphill battle against leftist parties in the government for many years and now finally had a very important breakthrough! We see that a lot of landlords are already thrilled by the opportunity to rent out their properties and this of course benefits our expat clients that come here for assignments and need a place to live.]

  26. Dylan Nicholson

    I just came across an interesting post suggesting that if building restrictions really were the primary reason we don’t have more dense/cheaper housing available in areas where people want to live, then the big developers who stand to make the most money out of loosening said restrictions would be lobbying politicians and the public a lot harder than they are to have them re-examined. Instead, there’s some evidence that the profit margins on ever denser/tall apartment buildings etc., especially for the sort likely to provide affordable housing, aren’t sufficiently high enough to interest many developers. So perhaps the solution is tax breaks on developments that are aimed at providing lower-cost housing in areas that we already accept are suitable for higher-rise buildings.

  27. Dylan Nicholson

    It’s fair to point out that in most cases the rent controls were introduced because there was perceived to be a problem with high rents, and maybe it’s better to do something than nothing, but it also seems pretty clear that in many (if not most) places that rent controls have been introduced the results have been less than spectacular.
    On the other hand I’m not aware of an abundance of evidence that the solution lies more in removing zoning and development restrictions that would allow building of cheaper residencies in areas where people want to live (whereas it’s easy enough to point to examples of what happens when there are very few restrictions on development – whether it’s the Favelas of Rio, the tenement slums of C19th New York or even the cage homes of Hong Kong).
    So I don’t think the solution is either obviously less or more regulation, but certainly smarter and better targeted regulation, that may even include meta-regulation of what sort of restrictions local councils can impose on developments.
    Rent control is just another tool, but I suspect one that needs to be used with extreme care.

  28. michael r james

    For a scientist the author is making a lot of quite unproven and unnecessary assumptions. First: “Rent controls make finding vacant properties harder.”

    That is a hypothesis based on the observation/association of two phenomena, rent controls and shortage of rental properties. I wasn’t convinced by any proof of any causative effect. The author says “430,000+ people are registered as waiting” but apparently there is a actual shortage of 40,000 apartments. The big number obviously includes a lot of people who put their names on the list because they are “shopping” for a different kind of apartment or in a different area.

    The developers claim rents need to move to free market (bien sur) but it is not at all clear that would solve the problem which appears to be that Sweden is undergoing something of a population boom that the building industry is not keeping up with: (Bloomberg)

    [Construction of new homes for rent and purchase rose 55 percent last year to 31,400 starts, the most since 2006, according to the Swedish Construction Federation. The government estimates that up to 50,000 homes need to be added annually in coming years to fill demand of Sweden’s growing population. That’s more than double the average amount constructed a year from 2008 to 2012.]

    Naturally they will say that high rents would solve it but one thing is for sure, everything would become even more expensive. The rent control laws impose a regulation that tenants are not allowed to spend more than one quarter of their income on rent. Sounds fair enough to me. (Paris had a similar rule when I lived there.)

    Most world cities have accommodation problems and rent controls are not a cause but a response to those problems–of affordability and attempts to keep a mixed population. Berlin is the latest city to apply rent controls in response to this problem. Brisbane and Sydney don’t have rent control but have terrible rental situations–paradoxically despite large number of (small) apartments being built in recent years. I visited one recently in the CBD and there were 7 adults in what was a two bedder where they had closed off a balcony/loggia to put in 3 beds, and so the living room no longer had a window to the exterior. Rent was $1,500 per week, $6k pm (SEK 39k). This is pretty shocking, and is also strictly illegal–it is against rental law and building regulations–but is rife all over the inner city.
    Sydney has a free market and this has not solved its rental or housing issues. Hong Kong has a free market and the most expensive property (by any criteria, certainly by sqm) in the world, has truly shocking housing problems and does not look like solving its problem any time soon–almost entirely related to greedy developers in league with corrupted politicians.

    If the author were to go to the two biggest universities in NYC, Columbia or NYU, he would find they have partly solved this chronic problem by providing their own housing to students and staff. Rents are about half market rate. In Paris there is the Cité Universitaire where I stayed for most of my first year.

    Sweden’s rent controls may need some modification (certainly on the prioritization system eg. giving priority to those without actual stable accommodation*; though I would hazard a suggestion that the author will have to change his target) but most likely the solution lies in promoting new building. And, as in HK, the government will need to regulate it. (Again from Bloomberg:)
    [While rent regulation slows down housing development, some builders say construction rules play a bigger role.
    “The biggest obstacle to new production is not the system for setting rents, but construction regulation and availability of land suitable for rental homes in a certain price category,” said Peter Wagstroem, chief executive officer of Swedish construction company NCC AB.]

    In any case there is no political pressure for removing the rent control which is only how it should be: these important social issues should be determined by people not companies. I hope the city solves this problem but not by jettisoning its famous equitable society for the sake of some short-term boom.

    *On second thought, there are valid counter arguments: here from NY Times:
    [roughly 40,000 people — both from inside Sweden and outside the country — are now moving to the city to work for tech companies, financial firms and other Swedish businesses each year, according to Stockholm’s city government.
    … But critics say the newly arrived, who often have salaries that dwarf local residents, should not be given priority over people who have lived in neighborhoods for decades.]
    ……………………..
    Of course I know what AD would suggest as a “solution”: that of Ed Glaeser and Matthew Yglesias who suggest that cities like Paris, Washington DC and others (Silicon Valley, no doubt Stockholm & Copenhagen etc) with restrictive building codes (on heights etc) should allow hi-rise to be built anywhere and everywhere. Other than destroying the very things that make those places desirable, there is also no evidence anywhere (check HK, Tokyo, NYC etc) that hi-rise per se causes rents to stay low. The correlation is entirely in the opposite direction.

  29. Tom the first and best

    If a landlord sell a property to a household that would otherwise be a rental household, then there is no net effect on the rental market. This would make up the majority of transactions caused by the introduction of rent control. It also increases the security of tenure of the household. A home that has non-outgoing tenants in it is just as useless to someone looking for a home than one that is owner occupied home.

    Higher taxes on empty properties and vacant land can also be used to keep housing occupied and discourage land banking.

  30. Brian Melbourne

    The main problem here is one of the highest rates of population increase in the world combined with a tax system that encourages speculation in real estate, exacerbated by overseas buyer speculation, resulting in some of the most expensive housing in the world. That’s why rents are so high, surely?
    I don’t see cause and effect in the above article.

  31. hk

    An interesting point of view. Hopefully Peter Vella is not implying the underlying factor for the lack of available affordable housing in Stockholm is mainly the existing Swedish form of rent control practice?
    There are many more ways of influencing rent revenue for property owners that are more attuned to the Australian style of life and doing business.

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