SHARE
COPY LINK
For members

POLITICS

EXPLAINED: What do proposed changes to Sweden’s rental laws mean for tenants?

What do the plans to change Swedish rental laws mean for residents, and could the row over the proposals really bring down the government? The Local explains.

EXPLAINED: What do proposed changes to Sweden's rental laws mean for tenants?
The proposals would only apply to newly built apartments. Photo: Ulf Grünbaum/Imagebank.sweden.se

What’s happening?

The Left Party threatened to topple the government over planned changes to the housing system in Sweden, which would introduce market rents for newbuilds. 

After the government did not respond to the Left’s ultimatum (which gave them 48 hours to either drop the proposals or go back to the drawing board and involve the Swedish Tenants’ Union in negotiations), the party said it would begin preparing a no-confidence motion.

The only snag was that the Left don’t have enough MPs to put such a motion forward. After they said they would not put the motion forward together with the far-right Sweden Democrats, the latter party — which does have the required number of MPs — said it would submit the motion on its own.

So that’s where we stand now, with the government said to face a vote of no confidence next week, unless the parties come to an agreement before then.

What are the rental laws up for debate?

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.

What are market rents and how would the government’s plans work?

Market rents are the opposite system to what’s currently in place in Sweden: landlords would be free to choose the price they set based on the market; in other words, based on demand.

The government’s plan would only apply to newbuilds, so previously constructed apartments would not be affected.

One of the planned changes is that location would play a bigger part in setting the price, so that housing in popular areas would go up in price. Rent would also rise each year in line with inflation.

Early in June, the government presented the results from a review into market rents, which had the stated aim of creating “a model that contributes to a long-term well-functioning rental market and efficient utilisation of the current stock”.

Why are market rents on the table?

The proposal is part of the so-called January Agreement between the ruling Social Democrat-Green government and the Centre and Liberal parties. 

After the 2018 election left neither of Sweden’s traditional political blocs with a clear majority, the government was forced to negotiate with its former opposition, and gained “passive support” from the Centre and Liberal parties. This meant that while the latter two parties are not part of the government, they agreed not to vote against the government’s formation, but in exchange they asked for significant influence on policy, resulting in the 72-point deal.

One of the points was that market rents should be introduced for newly built properties.

What are the pros and cons of each system?

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.

Market rents could stimulate the production of more housing, shortening housing queues, but critics such as the Left Party and the Swedish Tenants’ Union (Hyresgästföreningen) say it will make housing more unaffordable, worsen protections for renters, and increase housing segregation.

Another concern, which was even highlighted in the government’s press conference announcing the changes, is that the new system may incentivise landlords to terminate contracts with tenants if they can find someone who will pay more, thus creating more precarious housing situations. That would be possible because rent would be set individually between landlords and tenants. The government said that “complementary proposals” would be put forward to address the concerns with the market rents.

What are the next steps?

The government will now send its proposals out for consultation, which means feedback from affected organisations will be gathered. After that, a final version would be prepared, with the aim of putting the bill to parliament in early 2022. If passed, they would then enter law from July 1st, 2022.

But before that, the government looks likely to face a no-confidence motion next week, so it remains to be seen how the outcome of that affects the planned changes. 

How would a no-confidence motion work?

In order for the vote to go to parliament, it would need at least 35 members of parliament to sign it. The Sweden Democrats said they were willing to join forces with the Left Party (which only has 27 MPs) for a no-confidence vote, but the Left has rejected their help, so the Sweden Democrats said they would submit the motion themselves.

At the time of writing this update on Friday afternoon, a majority of parliamentarians have said they’d support the motion: not just the Sweden Democrats and Left Party, but also the conservative Moderates and Christian Democrats. The latter two parties actually back market rents, but don’t support the government.

If the no-confidence goes to parliament it would need at least 175 members of parliament to vote in favour. The support of those four parties would be enough to achieve that.

Hasn’t the Left threatened to topple the government before?

Yes. The Left party are traditionally allies of the governing centre-left Social Democrats, but they were not happy about the January Agreement and the influence it gave to the two centre-right parties.

Back when the current government was being formed, the Left’s then-leader Jonas Sjöstedt was clear about his party’s new status as “the left-wing opposition”, and said they would not hesitate to bring a no-confidence motion if Löfven went ahead with reforms on for example de-regulating the housing market or workers’ rights.

Last year, the Left Party threatened a no-confidence vote over planned changes to Swedish hiring and firing laws. Ultimately, that didn’t happen because the government renewed talks with unions over the laws, and got them on board with its proposals.

The Left is in a difficult position because it aligns much more closely with the government than with the centre-right parties, but the government has moved further to the right on some of the issues that are core priorities to the Left Party.

Tune in to The Local’s new podcast, Sweden in Focus, on Saturday, as we discuss this article in more detail.

Member comments

  1. It’s strange that the new leader of the Left Party, Nooshi Dadgostar, hasn’t realised that the numbers are stacked against her. She herself has said nix to the Sweden Democrats, and there’s no way that the C, L, M and CD parties will vote with her against the government on this particular issue. So why go ahead with the threat of a no-confidence vote that is doomed from the outset? Really odd. One can understand her wanting to make her mark as the new leader, but she’s a polical featherweight compared to Löfven and Johansson and other prominent Social Democrats. She doesn’t stand a chance. Perhaps there’s an ulterior motive lurking somewhere. Will be interesting to see what happens once the 48 hours expire.

  2. Pingback: Anonymous
  3. Pingback: Anonymous
  4. Pingback: Anonymous
  5. Pingback: Anonymous
  6. Pingback: Anonymous
  7. Pingback: Anonymous
  8. Pingback: Anonymous
  9. Pingback: Anonymous
  10. Pingback: Anonymous
  11. Pingback: Anonymous
  12. Pingback: Anonymous
  13. Pingback: Anonymous
  14. Pingback: Anonymous
  15. Pingback: Anonymous
  16. Pingback: Anonymous
  17. Pingback: Anonymous
  18. Pingback: Anonymous
  19. Pingback: Anonymous
  20. Pingback: Anonymous
  21. Pingback: Anonymous
  22. Pingback: Anonymous
  23. Pingback: Anonymous
  24. Pingback: Anonymous
  25. Pingback: Anonymous
  26. Pingback: Anonymous
  27. Pingback: Anonymous
  28. Pingback: Anonymous
  29. Pingback: Anonymous
  30. Pingback: Anonymous
  31. Pingback: Anonymous
  32. Pingback: Anonymous
  33. Pingback: Anonymous
  34. Pingback: Anonymous
  35. Pingback: Anonymous
  36. Pingback: Anonymous
  37. Pingback: Anonymous
  38. Pingback: Anonymous
  39. Pingback: Anonymous
  40. Pingback: Anonymous
  41. Pingback: Anonymous
  42. Pingback: Anonymous
  43. Pingback: Anonymous
  44. Pingback: Anonymous
  45. Pingback: Anonymous
  46. Pingback: Anonymous
  47. Pingback: Anonymous
  48. Pingback: Anonymous
  49. Pingback: Anonymous
Log in here to leave a comment.
Become a Member to leave a comment.
For members

PROPERTY

IN CHARTS: How bad is the situation in Scandinavian housing markets?

House prices in the Nordic countries are now down double digits from their peak. How much further have they got to fall and what might that do to the Nordic economies?

IN CHARTS: How bad is the situation in Scandinavian housing markets?

The price of residential property peaked in Sweden and Denmark in June last year, and in August in Norway.

Since then, Sweden has seen the biggest falls, with the price of homes overall dropping by 16.8 percent, detached houses by 18.6 percent, and apartments by 13.8 percent, according to the Booli! price reporting service

Norway has seen slightly less steep falls, with the average price of a home falling from 4.6 million kroner in August 2022 to 4 million kroner at the end of December, a fall of about 13 percent. The seasonally adjusted figures used by the country’s national bank indicate a much lower 2.6 percent fall between August and December 14th. 

Denmark has so far come off the most lightly, with the price of apartments down 10 percent and the price of houses down 9 percent.

“It’s really the effect of higher interest rates that is driving down house prices, which is completely by the book,” Las Olsen, chief economist at Danske Bank, told The Local. “Higher funding costs naturally lead to lower house prices. And the increase in interest rates that we’ve seen over the last year is very large and that means that the pressure on house prices is also very high.”

Housing costs in all three Scandinavian countries were high by European standards before rates began to rise, explaining why the region has been relatively hard hit.

An analysis by Eurostat, using 2021 figures, showed that housing costs, including gas, electricity and water, were higher than in most other comparable countries, with housing costs in Denmark beaten only by countries like Switzerland and Ireland. Housing costs in Sweden and Norway were slightly lower.

When Eurostat looked at what percentage of household disposable income was spent on housing in 2021, Denmark and Sweden were also both at the high end. Norway was not included in the study.

Olsen said the situation in the housing market before rates started to go up explained why prices had so far fallen most heavily in Sweden.

“Swedish house prices have dropped quite a bit more than what we see in Denmark and Norway, even though the Swedish interest rate increases are not substantially bigger,” he said. “This reflects, for one thing, the fact that Swedish house prices were probably a bit more highly valued going into this period of higher interest rates.”

A report by the European Systemic Risk Board, published in December 2022 and based on data from the second three months of 2022, estimated that apartments and houses in Sweden were potentially more overvalued than any other country in the European Union apart from Slovakia and Luxembourg. 

The board judged that residential property in Sweden was between about 25 percent and a little over 60 percent overvalued. 

Residential property in Denmark, meanwhile, was only judged to be between 15 percent and a little over 30 percent overvalued. Norway was not included in the survey. 

Source: European Systemic Risk Board

Olsen noted that Swedish households are also “a bit more vulnerable”, as they have not been supported with government money during the pandemic and the more recent inflation crisis to the same extent as households in Denmark and Norway.

Danish households also have an advantage over their Swedish and Norwegian counterparts because more than half of Danish mortgages are fixed for the entire 30-year duration of the loan, whereas variable rate mortgages are much more common in Sweden and Norway.

Up until the middle of 2018 around 80 percent of new Swedish mortgages were only fixed for three months or less, while only a few percent were fixed for more than three years.

“Swedish households are very sensitive to movements in interest rates. They have variable loans, in general, so it’s feeding through very rapidly,” he said.

At the start of 2022, the number of new mortgages fixed for three years or more in Sweden soared to more than 80 percent, but according to the government-owned lender SBAB, a full 80 percent of customers still chose variable rate mortgages in December. 

How many new Swedish mortgages are variable rate?

Purple = fixed for three months or less. Blue = between three months and a year. Green =
fixed for between one and three years. Grey = fixed for more than three years.

Source: Statistics Sweden

Norway also has a large proportion of variable-rate mortgages, but Olsen suggested they were still less vulnerable. 

“Norwegian households have some other strengths: they have received a lot of support during Covid, especially. And also electricity bills are more or less capped in Norway, which they certainly are not in Sweden.”

How indebted are Scandinavian populations? 

Households in Denmark, Norway and Sweden have among the highest level of loans outstanding compared to their gross disposable income of any of the counties covered by The Local’s network, according to a survey by Eurostat.

The high apparent indebtedness of Danish households, however, is partly warped by loans taken out by farmers, which are included in household debt statistics. Olsen estimates that the real level of indebtedness in Denmark, while still high, is closer to that of Sweden.

In addition, household indebtedness as a share of income in Denmark has fallen steadily since it peaked in 2014.

“Households in Denmark have been saving quite vigorously ever since the financial crisis, so the level of debt is high but the direction is down,” Olsen said.

So what will happen over the next year or so? 

The official prognoses are for a soft landing rather than a full-on market crash.

Denmark’s central bank, Nationalbanken, expects house prices to fall by about 5.6 percent in 2023.

Adjusted for the season, Norway’s central bank, Norges Bank, expects house prices to fall in total by about 6 percent from August 2022 to August 2023, before starting to rise again. 

Sweden’s Riksbank central bank, using the Hox Sverige housing index, in a report out in November, predicted that the 11.75 percent annual fall seen at the end of 2022, would be repeated by a further 8 percent fall in the year leading up to the last quarter of 2023. This represents a total fall of about 19 percent.

Some economists are more pessimistic, however. 

“If interest rates go the way everyone expects, then it’s quite reasonable to see housing prices going down 8 percent in 2023,” Tor Borg, head of analysis at CityMark, told The Local, referring to the Swedish market. “But I think it could be worse, as I’m not that convinced that inflation will come down as quickly as everybody thinks and I’m not sure the Riksbank will stop increasing rates as soon as everybody else thinks.”

Las Olsen at Danske Bank said that even if the fall in property prices did turn out to be deeper and more prolonged than currently predicted, Sweden, Denmark and Norway were all “fairly well prepared for such a scenario”.

“We have after all been through the financial crisis and also through the crisis before that and hopefully we have learned something from those events so that the economies are more robust.”

SHOW COMMENTS