Saturday, 6 September 2008

My Castle

My apologies for another long absence between blog entries. This time my excuse is that I’ve been moving flats. However I’m settled now and back to the blog with a load of material on the Swedish housing market.

Like a lot of things in Sweden, finding a place to rent isn’t easy. In part this is because of a shortage of housing that seems to be affecting a lot of places. But it is also compounded by the Swedish fixation on rules and regulations, and closer analysis of the situation once again reveals sticky fingerprints from the meddling hands of the Social Democrats.

In our last flat we were living on what is called a second-hand lease, aka we were renting off someone who in turn was renting off the original owners. This is quite common in Sweden. In fact getting hold of a first hand lease where you’re renting directly off the owners, is exceptionally difficult and often involves being on a waiting list for years. Second-hand leases are significantly easier to obtain, but by no means easy. Demand is so high that if you place an ad for a vacant flat you’ll get half of Gothenburg banging on your door. It is generally accepted in Sweden that if you want to find a place to live, you need contacts. Don’t bother with advertisements or agencies, just tell all your friends to tell their friends and hopefully someone will get back to you. This is basically how we found our new flat.

Because first-hand leases are so sought after when one manages to finally get one they loath to give it up even if they have no real desire to ever live there again. This is exactly the situation A and me found ourselves in with our flat. Our landlady rented it out because she no longer wanted to live there. But we did. We were quite happy there and would have been happy to continue living there. However the rules governing second leases means that after 18 months our landlady had to either move back into her flat or give up her first hand contract. Thus we were forced to leave while she’ll move into a flat she doesn’t want to live in. All this just to keep a first hand contract!
This is quite common. Anyone in Sweden can retell similar stories and just about everyone I know who rents second-hand is renting off someone who has no intention or desire to live there in the foreseeable future but refuses to give up their contract.
We’ve heard from our neighbours that our landlady was hardly ever home when she rented it, and the flat next to us is also empty. Meanwhile Gothenburg is in the midst of a housing shortage.

It’s a bizarre and crazy situation and I’ve spent the last month asking every Swede I know why this is. After all a first hand contract is basically the only way people rent property in the rest of the world and holding one is no big achievement. They’re better than second hand contracts as it gives you more long-term stability. Second-hand contract by contrast means you’ll have to move in 6-12 months. But otherwise there doesn’t seem to be anything particularly special about first hand contracts other than their rarity thus starting a vicious circle. No one wants to give them up about their hard to obtain, so they become hard to obtain because no one is willing to give theirs up. This seems to be the common explanation from expats but there has to be more to it than that.

A big feature of the Swedish housing market is the strict government control over rents instead of a free market allowing you to charge whatever you want. There are rules that dictate exactly what you can charge governed mainly by the properties size and attributes. If you’re renting second hand you cannot charge more then what you’re paying unless the flat is furnished in which case you add no more than 10%. Location isn’t a big factor so a 2 bedroom flat will cost the same regardless of its location in the city. If it’s an inner city or in an outer suburb, assuming their of similar size and standard they’ll be the same rent. For Melbournians it would be like renting a flat right by the Yarra River in Southbank for the same price as a flat in the most decrepit industrial areas of North Sunshine. Or for Sydneysiders, renting a house in Kirribilli for the same as a house in Redfern.

This ensures rents stay low and affordable, and thus landlords cannot exploit the housing shortage by charging extortionate rents such as they’re currently doing in Sydney and Melbourne. Consequently investing in property isn’t the money-spinner it is in other countries and far fewer rental properties are owned by private individuals. Furthermore there are plenty of rules that restrict what you can deal with a property once you buy it. I’m lead to believe that when you buy a flat in Sweden you’re not really buying a flat (and this is one of those situations that starts to verge into Communism) but you’re buying the right to live there indefinitely rent-free. But the flat is still owned by the co-op that own the whole building thus you’re still subject to their rules and restrictions.

Most apartment blocks are owned by government agencies or private corporations. The upside of all these rules is that rents stay relatively low. The downside is that the rental market is a lot smaller and finding a rental property becomes a lot harder. From what I gather it has become more difficult in recent years because currently many of these agencies are encouraging tenants to buy their properties outright. If you already own the first hand contract than you can buy it at a discounted rate, sometimes up to 30% cheaper. One theory I’ve heard is that people are hanging onto their leases in the hope that they’ll be offered the chance to buy it at a bargain basement price thus allowing them to immediately resell it on the free market and pocket the difference.

The idea behind equality in rents regardless of location is to prevent rich-poor divides developing in Swedish cities, as no one will be priced out of a certain area. While there is definitely still some sort of economic divide (plenty of landlords and housing agencies factor in an applicant’s income when choosing tenants) to some extent it has worked as most Swedish cities seem to lack obscenely wealthy suburbs and desperately poor ghettos. However as few people find rental properties the traditional way and instead you rely on contacts, newly arrived migrants are significantly disadvantages and this has caused large ethnic ghettos to emerge in the outer suburbs. As migrants typically don’t have a large network of contacts to rely on, they’re often forced to take the first property offered to them, which is most likely to be in the one of the less desirable locations.

For all it’s ideals and good intentions the Social Democratic housing policy for rental properties has contributed to making Sweden an exceptional racially segregated city which I can envisage as being a major social problem in the coming years. But this is a whole other topic and one for a whole new blog entry. (Possibly one I’ll have written by next week).

However looking around me in my new flat I can’t really complain too much. Right now I live in a newly renovated flat, fully furnished with all the modern conveniences such as dishwasher and central heating, in a very central location (only four tram stops to the centre of town.) Despite my struggle to find a secure or fulfilling job, I cannot complain about my living standards, which are quite possibly the highest I've had since moving out of home. If I were to move back to Melbourne today a flat of this standard and location would be right out of my price range and I cannot envisage myself living like this in Australia for at least a good number of years. But thanks to the Social Democrats even a student and a minimum wage earner can afford to live like inner city yuppies.


Leplume said...

Hello! I've been following your blog as it is an area that interests me very much. My fiance and I will be moving to Sweden within the next couple of years and this post made more sense out of the Swedish rental system than anything else I've read on the subject! So, thank you very much!

scientician said...

Hi, I'm Jan Loh's niece and she sent me your blog address. I'm moving to Gothenburg in (fingers crossed) January and am starting to wonder whether I should start making good contacts now to find somewhere. Anyway, if you fancy anything particuarly Aussie/Melbournian to be brought over, I could be your woman.

NotQuiteDanish said...

It's sounds quite like here in Copenhagen where 2nd hand leases are extremely common. Also, few lanlords give leases for more than two years. This has something to do with the law which implies after three years, tenants have, what I can only translate to be, sort of, squatters rights.

Interesting about the amount of rent there in G and location. Definitely not so here in Copenhagen where if you're in the equivalent of Prahran or South Yarra, you pay accordingly.

I'm wondering if the system they have here called 'Andelsbolig' is what you're talking about with regard to 'buying the right to live somewhere'. With an Andels, you pay about a third of the outright price and then a monthly 'rent'. I still can't work out the benefit of it but they are very common here in CPH and in all areas - posh and not so posh.

mjb said...

I'm very interested in everything related to Sweden. I travel to Stockholm as much as I can and speak some Swedish (and doing my best to learn!)
Your entry is very interested. I came across your blog and wanted to thank you about it.
Rental is absolutely different in Spanish. It's free, people overcharge as much as they can and the result is a big problem. They are a lot of empty flats (normally to buy) but we can't afford them unless we are married. And if married it takes 50 years to pay (in case we survive without food maybe 30 years). Rents are pretty the same, and even in suburbs they are up to 700eur when a lot of people earn 1000 or 1200eur monthly (after taxes sometimes) and prices are very similar to Stockholm...
Who knows? Maybe if you were here, trying to "survive" you may think this "overprotection" is absolutely wonderful even if it takes longer to get a place to live. We say here: we want what we don't have...
Thanks for your blog and I'll follow your new posts!!
Greetings from Spain

Anneli said...

I´m a Swedish woman currently living in China! Normally my home is in Lerum, just 20 min outside of Gothenburg. I just came up with the idea of searching the internet for expats in Sweden, which I never thought of before that such could exist! To me, to be an expat you have to go somewhere a little more exotic than Sweden! But that´s of course from my perspective. I really don´t have time right now to continue reading, but I will. I just wanted to comment on what you said about buying a flat, that you don´t buy the flat itself, just the right to live there, which is true, BUT you are buying a part of the co-op which correlates to the size of your apartment, so you together with the rest own the building. It´s basically the same as owning your flat, but I think that part of the reason is that there are many responsibilities that you have to share with others, for example all the pipes, and the heating system in the building. It also prevents some owners from doing damage to the flat which might influence the building. I didn´t check these things, but this is just what I think is the reason. There are usually some good reasons behind all the rules in Sweden, even though they might not be clear at the first look. Having lived in the States and now China, I don´t think Sweden has as many stupid rules as I used to, when I was younger!


Nic said...

Thanks for the clarification Anneli. Like I said I don't pretend to be an expert and my main sources of information are informal chats with friends, so feel free to correct me if I'm wrong or misunderstand.

You make a fair point. There are a lot of rules that seem odd at first but fair when you understand the context and reasoning behind them.

I know I probably spend too much time poking fun at Swedish customs but I assure you I do understand their qualities. With the rental rules I think basically its about keeping rents low and affordable. I've even managed to find some positives with Systembolaget (the range of things on offer, the helpful knowledgeable staff). I'll try and highlight these aspects too in future, and not just resort to cheap laughs.