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13 02 2020

In Stockholm, Rent Cap Created Booming Black Market

On 30 January, Berlin’s House of Representatives passed the law enacting the rent cap with the votes of the governing parties, these being the Social Democrats, the Left Party and the Greens. Regardless of whether or not it will stand up to a review by the Federal Constitutional Court, there is plenty of speculation about the ways in which this instrument might change Berlin and its housing market. To get an angle on the issue, one could obviously take a look at other cities where similar regulations have governed the rental market for some time, such as Stockholm.

At a recent panel discussion, a member of the Swedish Parliament, Robert Hannah, reported on the situation on the housing market in the Swedish capital. The rent cap in Stockholm has been in place for more than 50 years, with the permissible rent level negotiated annually between representatives of tenants and landlords, respectively.1 Although the arrangement does keep rent rates comparatively affordable, it also creates unforeseen difficulties for flat hunters. The gap between supply and demand is so wide that tenant leads need to add their name to a waiting list that has already swelled to more than 600,000 applicants.2 This means you may have to wait for up to 20 years before getting a rental flat.
 

One in Four Lease Agreements is Unlawful

It comes as no surprise therefore that the housing market in Stockholm is to a large extent compromised by black-market transactions. People for whom money is not an issue will often cut the decade-long waiting period short by paying something extra under the table. Robert Hannah, Member of the Swedish Parliament, mentioned that payments of up to 50,000 euros are requested for a lease agreement. In 2017, the Swedish government released a report according to which 25 percent of all leases were signed on unlawful terms.

Michael Voigtländer of the Cologne Institute for Economic Research (IW) points to analogous experiences with rent caps in other countries, including Sweden.3 He found that flats had increasingly been sold for owner-occupancy rather than being let to tenants, while in a parallel development the low rent level had further driven up demand for rental flats in central locations. The winners of the situation are obviously “well-heeled and well-connected tenants” rather than low-income households, he added.

In the eyes of Voigtländer, there is also a risk that the rent cap may cause investors and companies to turn their backs on rental housing. It is also likely to cause a decline in modernisations because it eliminates the financial incentive for modernising rental housing. Whatever else you can say about Stockholm, at least the building fabric of the local housing stock has not suffered from the rent cap – unlike in other rent-capped cities, such as Lisbon.
 

1 www.t-online.de/finanzen/immobilien/id_85951038/so-schuetzen-andere-staedte-weltweit-ihre-mieter-.html
2 www.morgenpost.de/berlin/article228261131/So-wirkt-der-Mietendeckel-in-anderen-Staedten.html
3 www.iwkoeln.de/presse/in-den-medien/beitrag/michael-voigtlaender-der-mietendeckel-ist-eine-katastrophe.html