Uninteresting rants about unregulated rents
The regulation of rents in Sweden has long been the subject of lively debate. Often, the debate is driven by economists who start from the premise that the current system doesn't work and that we should therefore somehow deregulate and introduce unregulated rents set by the free market. It's worth noting that economists are quite alone in their never-ending flow of op-ed rants. The major private landlords appear oddly uninterested in the discussion. The silence can partly be explained by their interest in not appearing too miserly as it risks their relationship with tenants, which is often already strained. But there are three other important economic reasons, most people aren't aware of.
Firstly, there is essentially already free rent setting in new construction, but the system isn't called market rent (marknadshyra) but presumptive rents (presumtionshyra). Rents in newly built houses are now so high that the houses suffer from high turnover of residents and sometimes it's even difficult to find tenants at all. Rents of over 16,000 SEK per month for a smal 4-room apartment require relatively high incomes from two people. The problem is that the target group who can afford such rent can also afford to buy an apartment, often resulting in a lower monthly cost. Therefore, the incomes from new construction are essentially already maximized; there's no more money to make for the landlords.
Secondly, there have long been ways to increase rents to new built levels even in older apartment buildings. Many landlords have a system in place to renovate apartments according to a predetermined template that is considered to raise the standard. If they replace an old vinyl floor in a bathroom with a new one, it's counted as maintenance and is to be included in the rent. If they instead lay tiles, it's considered a standard improvement and you get a rent increase. The price, function, and lifespan can be exactly the same. Renovations are, of course, only done once a tenant has moved out, to avoid headlines about raised rents. The template includes things like spotlights in the ceiling, fully tiled bathrooms, and oak parquet flooring. It may sound fancy but in fact there is basically no cheaper flooring as three strip wood flooring and no cheaper bathroom wall cladding than 15x15 cm white tiles. This system results in perfectly functional bathrooms, kitchens, and floors being ripped out and replaced with budget-standard products of varying quality in renovations that few desire. It's sad both for the environment and for anyone who would rather have money left after paying rent than four spotlights in the bathroom ceiling.
Thirdly, it's not always the rental income in actual money that a landlord primarily aims for, at least not the big players. Instead, they aim for the presumptive rental income, i.e., the maximum theoretical income. These presumptive incomes determine the property's value in the eyes of the bank, which in turn determines how much the property can be mortgaged. All property companies rely on loans to acquire new properties, maintain the old ones, and build new ones. Increased turnover and stock price are also often tied to bonus systems and the like for the corporate management. A property with high rents can be mortgaged more than one with low rents. This partly explains the eagerness to renovate older apartments and is the most important explanation for why retail spaces can remain empty for years. The occupancy rate is of course to be considered when valuing a property, but in practice that can be hard to judge. And no property owner is willing to lower the rent to meet demand if it lowers the value of the property!
The debate about unregulated rents is uninteresting because the system already entirely aligns with the interests of the landlords. The debate misleads us from the important question of what we politically want with the housing question. As a tenant, the goal is obviously reasonable rents, good quality, and a generous supply of apartments. As a landlord, the goal is often the opposite. From a socio-economic standpoint, it is clear that politicians should work in the interests of tenants. High rents and housing shortages inhibit both growth and economic dynamism, drives unreasonable indebtedness among those who instead attempt to buy a home and creates an enormous transfer of wealth from the poorest part of the population to the landlords and bank-owners. Not to mention a lot of human anxiety and resignation. It’s time to wrestle the debate about housing policy from the hands of economists and instead focus on what kind of society we want to have, and work towards that. We can start by restoring the municipal housing companies to their public service mission, removing the system of presumptive rents, stopping the meaningless standardised upgrades, and providing municipal credits to housing cooperatives. It’s not hard, we’ve done it before.
