Rent Control, Good or Bad?

🌏 Planet B Media 🐝

During the 1960s and early 1970s the Swedish Government promoted an extensive housing construction project called ‘The Million Homes Programme’, but since then construction has consistently lagged behind demand.

One in five households rents a publicly owned home, and a similar ratio rents in the private market. Rents had been regulated since 1942, but were gradually deregulated between 1957 and 1968, when rent setting according to a utility value system, the “tenant’s value”, was introduced. This system, determines the rent according to the dwelling’s condition, reflecting its size, quality, year of construction and standard. New rents are set in accordance with comparable rents in the neighbourhood. Private landlording as we know it is almost unheard of. It is considered speculation, profiting from people in a way that is not socially appropriate.

There exists the Rent Negotiation Act, which authorized tenant associations to negotiate with landlords, public or private, to determine fair and proportionate rents. These negotiations generally take place each year, and 90% of rental agreements are determined in this way. The rationale is that such negotiations are fair to both sides because individual tenants are weak and lack the ability to influence landlords, and because it is easier for large-scale landlords to sign a group agreement than to deal with each tenant separately.

Another Swedish feature is that the rents in the large municipal housing stock served as a norm for all rents, including the private rental sector. A regulated market where rents are decided in negotiations or by courts rather than supply and demand means there is little incentive for construction. The wait in Stockholm’s public queue for a rental in the inner city now averages 13 years!

In theory, Sweden’s rental market is designed to ensure that anyone who doesn’t own their own property has access to an affordable home with rent that’s capped, provided by either a local council or a state-approved private company. Once you get one of these so-called “first-hand” contracts, is usually yours for life.

Far from providing “housing for all” Swedish municipal landlords actively avoid housing the poorest and most vulnerable households, preferring those tenants who can supply good references and have no history of rent arrears and bad debts.

A tenant of an apartment has the right to sublet. Would-be renters who cannot find a place have the option of either subletting from someone with a long lease or renting from a private landlord. However, such arrangements are often for a year or less, since individuals who choose to let out their homes are usually limited to a fixed period agreed by the building’s housing association and only for a valid reason such as travelling abroad or moving in with a partner. By contrast, subletting contracts can change hands for double that price on the black economy, despite regulations designed to ensure such tenants don’t pay much more than the market rate.

Over time, politicians have tried to make it easier to build new homes, particularly rental accommodation. In 2006, for instance, the utility value system was supplemented with presumptive rents for new-builds in order to increase the incentive for building new rented accommodation. In practice, this has meant that a property owner has the possibility to charge market rents for newly-produced rental apartments during an initial period. This period was first set at 10 years, but was extended to 15 years in 2011. In the meanwhile, low rents in the municipal sector mean many of the properties built during the time of the Million Homes Program are now in a deteriorated state and require extensive and costly renovation and repair.

As many of us so often predict, the long term effects of rent control and the active discouragement of private landlords have led to a shortage of housing, lengthy wait-lists for any tenancies that do become available, a decline in rental quality and a flourishing black market.

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