Oscar Stark recently was warming up leftover vegetarian pasta in his flat, a red-brick 1960s tower outside Stockholm.
Reheated veggie pasta isn’t exactly a gourmet meal, but it’s all the 20-year-old Swede said he can afford, because the majority of his income is spent subletting the place—even though the 11,000 kronor a month flat ($1,260) was the cheapest he could find.
“I struggle to make it work, but I’m not giving up,” says Stark, a marketing consultant recently interviewed by the BBC for an article on rent control in Sweden. “I really don’t have a choice, but of course I’m not satisfied.”
Waiting a Decade for an Apartment?
Stockholm is just one of many Swedish cities struggling with a housing shortage. It’s not just that prices are too high; wait times for flats are also stunningly long.
In Stockholm, for example, the average waiting time for a typical property is about nine years, the BBC reports, nearly twice what it was a decade ago. Nine years sounds like a long time, but wait-time in Stockholm’s most attractive neighbourhoods can run double that.
Maria Grigorenko, a 29-year-old brand manager who moved to Stockholm from Russia, recently landed an apartment after a nine-year wait and described herself as “lucky.”
For younger Swedes in particular, the housing situation is a real problem—and it stems from Sweden’s decades-long embrace of rent control policies, which stretch back to World War II.
“All the country’s rental units, whether public or private, are subject to rent control [in Sweden],” The Economist reported in June, “making everyone’s rent a matter of government policy.”
As a result, Sweden doesn’t have a housing market that would be recognizable to Americans. As the BBC noted, citizens essentially get in line to purchase “what Swedes call a ‘first-hand’ accommodation contract” through the local government.
The good news is that citizens who land one of these highly-prized contracts have them for life. The bad news is there simply aren’t enough of them, and the result is a “second-hand” market that results in people like Oscar Stark subletting properties from others who benefit from a constrained supply of housing.
The rent control measures are designed to prevent landlords “from making long-term profits,” the BBC notes, but they have led to market instability and a system that rewards the well-connected at the expense of other less-connected citizens.
“Rent-controlled apartments are passed between relatives and friends, which benefits those with existing networks, and challenges newcomers to the city,” the BBC says.
The housing problems in Sweden have become such a mess that something exceedingly rare recently happened: politicians were punished over the bad policy. In June, Stefan Lofven became the first Swedish prime minister to lose a no-confidence vote. Why?
“[It] was over housing policy,” The Economist noted.
Politico EU appeared to agree.
“A warning from the Swedish parliament: Housing market policy should be handled with extreme care,” reported Charlie Duxbury. “What began as a difference of opinion between Prime Minister Stefan Löfven and his allies in parliament over the way apartment rents are set in Sweden has became [sic] a full-blown government crisis.”
Rent Control: The Same Old Story
Sweden is hardly the only country struggling with a housing shortage because of rent control. Many European countries and cities have experienced similar problems—in April, a disastrous rent control law was scrapped in Berlin—and the policy is making a comeback in the US.
Yet the results of Sweden’s rent control policies were quite predictable. The reality is price controls and other government regulations can’t fix housing problems. It might be the one issue economists overwhelmingly agree on (see below).
In his book Basic Economics, economist Thomas Sowell documents the failures of rent control policies around the world, from Australia to New York, San Francisco to (yes) Sweden. As I’ve previously noted, decades of research show rent control makes housing shortages worse, which explains why there’s near-universal opposition to rent control among economists.
Why wasn’t a single housing unit built in Melbourne in the nine years after World War II? Because rent control laws had made the buildings unprofitable.
Why did Washington, DC, see its available rental housing stock decline from 199,000 to less than 176,000 in the 1970s? Because fewer people were willing to rent their homes because of price controls.
Why did building permits decline by 90 percent in Santa Monica, California, in 1979 from just a few years earlier? Again, because rent control laws had made the building of new units unprofitable.
The lesson? Rent control has effects on housing supply, and those effects are not good.”
In some cases rent control has even resulted in shortages of housing in the absence of scarcity. One example Sowell offers is Sweden, where in the 1950s the average wait time for a place to live hit 40 months—even though the Swedes were building more housing per person than any country in the world.
“As of 1948, there were about 2,400 people on waiting lists for housing in Sweden, but a dozen years later, the waiting list had grown to ten times as many people despite a frantic building of more housing,” writes Sowell. “When eventually rent control laws were repealed in Sweden, a housing surplus suddenly developed, as rents rose and people curtailed their use of housing as a result.”
Rent control did not disappear for long, however—which is why wait times in Sweden are even longer than they were in the 1950s.
Rent Control? No Thanks
The solution to housing shortages and high housing prices is beautifully simple: more housing and a free, competitive marketplace. That’s it. As Sowell observed, markets create affordable housing, while government intervention in housing markets has historically made housing unaffordable.
“Study after study, not only here but in other countries, show that the most affordable housing is where there has been the least government interference with the market – contrary to rhetoric,” Sowell wrote in Dismantling America.
Some cities in the US, such as Minneapolis, are considering passing rent control laws to cap prices on housing. This will only further diminish supply and result in lower-quality housing, as it discourages investment in housing.
Fortunately, after decades of bad policy, many in Sweden are finally waking up to this economic reality.
“I really feel like Sweden actually has failed [on housing],” Oscar Stark told the BBC.
He’s not wrong. And Löfven’s ouster suggests patience with a dysfunctional housing market is beginning to wear thin in Sweden—and others have taken notice.
“For the rest of Europe, the message is clear,” wrote Politico’s Duxbury. “Don’t underestimate the explosive potential of housing as a political issue.”
Fortunately, Europe’s housing issues are a problem sound economics can easily solve.