The failure of rent control: Sweden edition

Even though both theory and evidence show that rent control is bad public policy, Minneapolis’ city council continues to pursue it as a solution to the city’s shortage of affordable housing. Last year I wrote about how rent control measures were wrecking Berlin’s property market. These policies are also having the same predictable effect in Sweden.

The BBC reports:

A shortage of accommodation in Stockholm and other cities, is causing a major headache for young Swedes – in a country which has been championing rent controls since World War Two.

Rents are supposed to be kept low due to nationwide rules, and collective bargaining between state-approved tenant and landlord associations.

In theory, anyone can join a city’s state-run queue for what Swedes call a “first-hand” accommodation contract.

Once you have one of these highly-prized contracts it’s yours for life. But in Stockholm, the average waiting time for a rent-controlled property is now nine years, says the city’s housing agency Bostadsförmedlingen, up from around five years a decade ago.

This wait-time doubles in Stockholm’s most attractive inner-city neighbourhoods.

The traffic-jam has fuelled a thriving sub-letting or “second-hand” market, with “first-hand” renters and owners alike offering apartments to tenants for very high prices, despite regulations designed to stop people being ripped-off.

“I really feel like Sweden actually has failed [on housing],” says [Oscar] Stark, who believes he pays double the price his apartment should be leased for.

Other rent-controlled apartments are passed between relatives and friends, which benefits those with existing networks, and challenges newcomers to the city.

In Stockholm’s most elite central district, Östermalm, Christoffer, who asked just to be identified by his first name, splits a similar rent to Mr Stark [11,000 kronor (£920; $,1260) a month for a studio apartment in one of Stockholm’s outer suburbs] with his girlfriend, for a one-bedroom flat found through a colleague.

“It’s obviously a privilege to be in that position,” says the 24-year-old part-time student and start-up worker. “It’s not a good solution in the long term to have to rely on that.”

Regulations designed to prevent owners from making long-term profits are also fuelling market instability.

Since even legal sub-lets can rarely be extended beyond a year or two, it means those renting “second hand” have to jump between short-term contracts.

Rooms in flat-shares are also hard to come by. Most rented housing is for independent rather than group living: Sweden has Europe’s highest proportion of single-person households.

“I have a lot of friends who are struggling – moving many times per year,” says Maria Grigorenko, a 29-year-old brand manager in Stockholm who is originally from Russia.

She recently got a rent-controlled apartment after queuing for nine years. But says she knows few others “as lucky” as her.

“In principle I do believe the system is there to help, however, I think that the market and the demographics have changed so much.”

Rent controls in Sweden have had all the effects we might expect. They have discouraged investment in new housing, limited supply, and exacerbated the very problem — expensive accommodation — they were intended to solve.

My dad used to say to me: “Learn from my mistakes, its cheaper than learning from your own.” It will be much cheaper for the policy makers of Minneapolis to learn from the disasters in Berlin and Sweden than it will be from visiting this upon their city.