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There's a new housing 'crisis' every week. Here's one that's a bit different... 👇👇👇
We're not talking Extinction Rebellion types sounding off here. This is a genuine left wing party with 28 seats in parliament.
The government wanted to push ahead with rent reforms, so the Left Party withdrew their support.
This left the Prime Minister wide open to a vote of no confidence (which has now passed) and he now faces the choice of resigning or calling an early election.
Context: Sweden has had a housing shortage for decades and the central bank has repeatedly described the housing market as dysfunctional.
Leaving the politics out of it, it's a great little case study.
In the UK for example, free markets rule.
Landlords set their own prices based on market demand.
Certain areas experience higher demand than others, which leads to higher (ridiculous) rents...
And in those areas of high demand, more tenants are sharing accommodation to make it more affordable.
Clearly it's a problem, and somebody should do something...
People LOVE to be against things, but their analysis usually ends at just pointing out that something is wrong.
Solutions are far harder...
Rent controls are often proposed as a simple solution to this problem, and it was actually one of the Labour proposals in the 2019 UK election.
Sweden already have rent control, how does it work for them?
Via The Local:
Sweden currently has fairly strict regulations on renting.
One of the rules is that landlords may only charge a “reasonable rent” (skälig hyra) rather than choosing the price they set.
This applies both to people who rent directly from property owners on a so-called first-hand contract, and to people who sublet apartments that they rent or own.
In the latter case, they may charge a bit more than their own direct costs, but only to cover bills and services or any furniture included in the rental, and in the case of people who own the property, four percent may be added to cover the cost of capital.
All sounds pretty logical, simple and fair.
So why are they looking at rent reforms?
The reasoning behind the current system is that it is fairer and keeps housing affordable.
But caps on rental prices have also meant fewer new rental properties get built, especially smaller homes, because these are less profitable for owners.
Together with a rising population, especially in Sweden’s larger cities, this has led to a major housing shortage.
Queues for first-hand rental contracts are often a decade or more, which means many people, and particularly newer arrivals to the cities, end up on second-hand contracts.
In theory, these should not be much more expensive, but the huge demand for housing means people do get over-charged, and other restrictions on subletting mean these contracts can typically not last more than a year or two, creating an insecure situation for second-hand subletters.
Then there's the incetnives to consider...
Jonathan Cribb, an economist for the Institute for Fiscal Studies, previously suggested rent controls could affect the quality of housing.
Landlords could look for other ways to save costs, he said, "and a key way to do that is to not maintain the property".
It's almost like there's no easy solution.
Although, there was this one idea...
Full disclosure: I'm a big fan of LVT/Georgism.
Minor issue to solve first... An entire financial system leveraged to the nuts based on current asset valuations.
If anyone can tell me how to introduce LVT and re-price that system without bringing about economic armageddon, I'm all ears.
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