Written by: Nikkita Dixon
In theory, Sweden is a renter’s dream. The market is designed so those who aren’t on the property ladder yet can still have access to affordable homes, with capped rent and a contract for life.
In reality, would-be renters join a waiting list of half a million locals. They end up wading through the murky ‘second-hand contract’ black market and eventually settle for a temporary place to sleep while the real renter is out of town.
This housing crisis has plagued the Swedish capital for more than a decade, but is now starting to seep across the rest of the Nordic nation. According to National Board of Housing, Building and Planning (Boverket) a record 88% of municipalities are now reporting a shortage . Nine in 10 Swedes live in a municipality in crisis.
The average waiting time for a first-hand contract in Stockholm is now 10.8 years on average, with that figure rising to more 23.2 years for expensive inner city areas.
So what caused housing shortage? What’s driving the rental black market? And what are the implications for Sweden long term? Let’s take a look.
Where has all the affordable housing gone?
The root cause is uncertain , but experts weighing in on the matter believe the current housing climate stems from incremental changes to legislation and development that have taken place over the past three decades.
Housing construction cooled off in the early 90s after the financial crisis hit, bringing an end to years of frenzied property and commodity speculation, as well as the government subsidies aimed at stimulating the market. Development continued to stagnate, with new policies favouring high income households over affordable housing.
Further fuelling the deficiency of affordable homes was the growing number of municipal-owned rental apartments being sold to cooperatives or private owners who would take them off the market to be refurbished and later placed back on the market at a higher price.
Use of available housing stock also continues to be ineffective, with those wishing to downsize (and thus free up larger dwellings) being penalised by capital gains tax to do so .
Meanwhile Sweden’s population has steadily increased, particularly among those who typically fall into the lower income bracket, like young people and refugees.
How the rental black market emerged
Stockholm’s housing authority says it allocates 10,000 flats per year, with the option for contract owners to lock in their tenancy indefinitely. Yet Boverket estimates the nation would need to build 88,000 homes per year until 2020 to match projected population growth. With Sweden’s housing market being the most highly regulated in the world, rental organisations have a cap on how much they can charge tenants in letting fees. With rental demand being so high and supply so low, those
who hold these coveted first-hand contracts don’t easily let them go. The only way to se cure one beyond the decades – long waiting list is the black market.
Those who have the right connections within the black market can avoid the queue altogether and get their hands on a first-hand rental contract, so long as they don’t mind shelling out upward of $220,000 for the privilege. The purchaser of the first-hand contract will have usually factored into their decision that they’ll be able to make their money back by charging above-market rental prices to sublet.
This is what fuels the phenomenon that sees most residents in Swedish cities move from place to place. Unless you have the money to pay a bribe on the black market or buy an apartment, your only option is to take on a second-hand contract which, due to regulations, can only last between 1 – 2 years.
There are also some restrictions regarding charges for subletting, but it doesn’t seem to have stopped rental costs from skyrocketing for those shooting for a second-hand contract who would do just about anything to put a roof over their head. As the process is technically illegal, there aren’t figures to establish just how the mark-up is, but some sources say up to three times higher than the original rental cost of the first-hand contract. Yet very few house-hunters report the extortionate prices because it’s now become the norm.
What has been the impact?
According to a recent report by charity Stockholms Stadsmission, the housing crisis in Sweden is driving more and more people into temporary accommodation or homelessness. While the main factors for becoming homeless in the capital are typically mental illness and abuse, the report shows there are now an increasing number of people being forced onto the streets because they have a low income. Young people in particular are being affected, with a record 1 in 4 still living with their parents. Just 57% of those aged between 20 and 27 have made their way onto the property ladder or secured a first – hand rental.
The knock-on effect of this is reduced access to talent in the recruitment process for companies based in the country. Last year Spotify founders Daniel Ek and Martin Lorentzon added their voices to the growing number of calls for change, hinting the company may be forced to expand operations in other countries if the housing situation continues to impact its ability to recruit. It’s not the only organisation struggling to find housing for staff. Last year, German startup CupoNation abandoned plans to open an office in Stockholm after having issues finding places to live for its employees.
What’s the solution?
The Swedish Union of Tenants recently proposed a housing guarantee for young people 25 and under. The idea would be for municipalities to give those people priority for first-hand contracts when they’re made available. It’s currently being trialled in selected municipalities, while others are working to simplify the setup of transitory accommodation. To alleviate the housing shortage for students and immigrants, pre-fabricated ‘modular’ houses are being created as a temporary solution – the benefit being that they take far less time to build than a traditional house.
Housing startup Tech Farm is working on a solution to encourage Swedes to change their living standards from being one of solitude to more of a shared arrangement. The organisation is testing the waters with a handful of properties where renters live in a small dorm with communal living spaces.
Meanwhile the political conversation continues, with little in the way of a cohesive solution being presented by any one party. Some are calling for capital gains tax and home mortgage interest deductibility change, while others would like to see pressure put on municipalities to create more affordable housing. Most agree the current market regulations will have to remain, or else prices will go up without any change to the rate of housing being made available.
What’s clear is the housing crisis has taken a long time to get to this point and may well take just as long to resolve. In the meantime, everyday renters had best stick to that Nordic minimalistic way of living, because Sweden’s rental black market doesn’t look to be disappearing anytime soon.