Complex and unique – The story about the Swedish rental setting model 

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All modern welfare states intervene in their housing markets in one way or the other. Social housing, rent regulation and rental subsidies targeting lower income groups are common forms of government support. The housing needs for middle – high income groups are often left to the free market. But Sweden is a truly unique case and applies a universal housing policy meaning that housing should be provided for everybody. This idea dates back all the way to the 1940´s.

WW2 and the housing crisis

As WW2 started to sweep across Europe new construction stagnated in the private sector. A lack of building material had created a housing shortage resulting in rapid rent increases and evictions. Rent regulation was introduced in 1942 to protect tenants from unreasonably high rents. In the mid-1940s, municipalities were given the responsibility for providing housing for their inhabitants and new political guidelines were created stating the “good housing should be provided for everyone”. There would be no social or low-income housing. After the end of WW2 municipal housing companies were created and began to increase their share of new construction through favorable loans provided by the state.

Negotiated rents and the utility value system

The post WW2 era is commonly known in Sweden as the “record years”. Booming industry, migration and urbanization led to a rapidly increasing demand in housing. Through government interest rate subsidies and loans, construction per capita in Sweden was the highest in the world. The goal was to build one million dwellings between 1965 – 1974. These housing complexes were later named “the million projects”. By 1970s the housing shortage had disappeared.

The rent regulation that was introduce during WW2 was outdated and proved to be an un-flexible tool creating an unbalanced housing market. At the same time the government wanted to protect the tenants from “unreasonable” rent setting. This resulted in the creation of the “utility value system” which eventually became law in 1969. The basic principle is that in case of dispute between property owner and tenant, the rent is set based on the utility of the tenant and compared with standards of similar rental dwellings in the area. If a tenant is paying more in rent than the refence dwelling the rent can be deemed “unreasonable” and the tenant can gain monetary compensation.

In 1978, a new form of rent setting became law in Sweden. The rent is then determined on a yearly basis through collective bargaining which usually comprises of the property owner and the local union of tenants. This applies for both public and commercial actors. This way the market remains flexible and rents can be set though collective bargaining which provides protection of the tenants.

Both the utility value system and collective bargaining of rents exist in Sweden today.

The need for reform

A lot has happened since the introduction of the utility value system. As Sweden has entered a new era of economic growth, migration and urbanization a shortage of housing has emerged in many of Sweden’s municipalities. As some central locations become very attractive there is a critique that the negotiated rent lie below the tenant’s utility value. Work is currently ongoing to better reflect reality by adding more factors to the collective bargaining process which better reflects the tenants’ willingness to pay. By keeping this universal rental policy and leaving the rental setting to market actors we get the best of both worlds – a flexible market that protects the tenants.

 

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