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European Commission urges Sweden to tackle housing crisis

Sweden must tackle persistent growth in house prices and the continuous rise in household debt if it wants to avoid risks to jobs and economic growth, the European Commission (EC) has warned.

Published: 23 May 2017 12:30 CEST
European Commission urges Sweden to tackle housing crisis
File photo of apartments in Stockholm. Photo: Anders Wiklund/TT

Every spring the EC publishes its country specific recommendations for EU Member States after reviewing their economies, and this year Sweden has been urged to take action to address household debt and improve the strained housing situation.

The Commission notes that Sweden is experiencing “macroeconomic imbalances” and that in particular “persistent house price growth from already overvalued levels coupled with a continued rise in household debt poses risks of disorderly correction”.

If not dealt with, fallout could spill over to the financial sector as banks have a growing exposure to household mortgages, which could in turn hurt neighbouring countries in the Nordic-Baltic region, where Swedish banks are important.

Concerns over Sweden's housing market at an international level are not new: Swiss investment bank UBS warned last year for example that Swedish capital Stockholm had the third most over-valued property market in the world.

Household debt in Sweden has continued to rise from already high levels, the EC's report details, growing by 7.1 percent in 2016 and approaching 86 percent of GDP, as well as around 180 percent of disposable income. The main driving factor is higher mortgage borrowing as a result of continued house price increases.

The key drivers of the persistent house price growth are, according to the Commission, “generous tax treatment of home ownership and mortgage debt, accommodative credit conditions coupled with relatively low mortgage amortisation rates, and an ongoing housing supply shortage”.

It remains unclear whether a new mortgage amortisation requirement from 2016 will have any sufficient impact, the EU institution warns.

The shortage of available housing meanwhile is linked to “structural inefficiencies in the housing market”, with construction well below the level needed, and competition in the construction sector weak. A tightly regulated rental market hinders the efficient use of existing housing, exacerbating the problem.

Consequences of the lack of affordable housing include limiting labour market mobility, hampering integration of migrants in the labour market, and increasing inequality between generations, the Commission observes.

It is precisely that lack of labour market mobility that the founders of Swedish streaming giants Spotify have complained about in the past, noting that a lack of available housing is making it difficult for them to attract the best talent and may even one day force them to target growing in other countries than Sweden.

READ ALSO: How is Sweden tackling its integration challenge?

In order to combat the household debt situation, the EC recommends that Sweden should “gradually limit the tax deductibility of mortgage interest payments or increase recurrent property taxes while constraining lending at excessive debt-to-income levels” in 2017 and 2018.

To improve the availability of housing meanwhile Sweden should “foster investment and improve the efficiency of the housing market by introducing more flexibility in setting rental prices and revising the design of the capital gains tax”.

Sweden's finance minister Magdalena Andersson agrees that there are problems with the Swedish housing market, but is sceptical about some of the recommendations.

Limiting the generous tax breaks for home owners is not on the table for example.

And while she is more receptive about measures to increase construction as well as a possible debt ceiling limiting the size of mortgages based on the borrower's income, she warned that deregulating the rental market has the potential to go wrong, citing Finland as an example.

“We've seen rents increase by 40 percent there but there haven't been more rental contracts available. That's problematic, no more rental opportunities were created but the cost of living became more expensive,” she told Sveriges Radio.

Sweden's rental market is tightly regulated when it comes to municipal or state-regulated rental companies, who are banned from charging tenants above a certain level, but a shortage of those kinds of properties has created opportunity for private owners, who vary wildly in the prices they set for so-called “second hand” leases.

READ ALSO: Housing crisis forces record number of young Swedes to live at home

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INTERVIEW: ‘Most foreigners in Sweden don’t know they can get back excess rent’

In Sweden, people subletting apartments are not allowed to charge more in rent than they themselves pay. But foreign subtenants don't always know this. We asked Roland Sjölin, lawyer at the Swedish Tenants' Association, about how to get back excess rent.

Published: 18 April 2024 15:19 CEST
INTERVIEW: 'Most foreigners in Sweden don't know they can get back excess rent'

More and more of the people asking the Swedish Tenants’ Association, Hyresgästföreningen in Swedish, for help with excess rent are foreigners, Sjölin told The Local in an interview.

“The problem is that if you’re coming from another country, and you’re subletting an apartment, you’re probably not familiar with the rules in Sweden, because in other countries, it might be okay to overcharge your tenants.” 

He said that clients from India in particular seeking help from the association were now “very common”. 

“Many people come here to work as engineers in the IT sector and then have to rent somewhere,” he said, adding that as a group Indians appeared to be “very aware of their rights.”

Sweden’s rental sector is heavily regulated, with first hand contracts negotiated between landlords and the Tenants’ Association, and the rent that can be charged for second-hand contracts limited to only a small fraction above what the first-hand renter pays. 

“You’re not allowed to make any profit subletting an apartment in Sweden,” Sjölin explains. “You can only charge the subletting tenant the same rent as you [the first-hand tenant] are paying to your landlord, and then you can add the costs for internet and electricity, and perhaps a parking lot, if that is included.” 

Tenants’ Association lawyer Roland Sjölin. Photo: supplied.

You can also add a påslag or “markup”, if you are renting out the apartment fully furnished, but this cannot exceed more than 15 percent of the rent. 

That doesn’t mean that most landlords follow the law. The competition for rental apartments, especially in Stockholm, is so intense, that unscrupulous sublet landlords often try to get away with charging well over the legal amount, charging what is known in Sweden as ockerhyra, or “excess rent” and hoping that their tenants are too desperate to complain.  

What many foreigners do not realise is that even after the rental period is over, they can still get back any excess rent they have paid by applying to the Rental Board or Hyresnämnden, which functions like a court judging rental disputes. 

“If you have the evidence then it’s fairly easy,” Sjölin said. “I get a new case every second week on repayment of unfair rent, and I think that I win most of them.” 

“Nowadays, you can get paid back excess rent up to 24 months back in time, so people tend to get more money,” he added. “In some cases, they can get 200,000 kronor. In other cases, perhaps it’s only 30,000 kronor or 60,000 kronor. It depends on how long you have rented the apartment, and how excessive the rent you’ve been paying has been.”

The first step is to establish what would have been a fair rent, either by asking your landlord what they themselves pay directly or by checking with the Tenants’ Association.

“Because we negotiate most rents in Sweden, we normally know what the firsthand rent is,” Sjölin explained.

Then you need to collect together your evidence.

“It’s a good thing to have a written contract and also papers from your bank showing that you paid rent every month, and perhaps photographs of the apartment, so the rental board can get an idea of the apartment you were renting and what would be a fair rent, and also the termination for the contract so you can show the court how long you’ve been living in the apartment.” 

But Sjölin underlined that since Sweden has free burden of evidence, none of this is essential. 

“Even if you’ve been paying in cash, if you have witnesses who can testify what you were paying each month, you still have a chance of getting your money back. It’s a bit more tricky, but I’ve won two cases like that this year.” 

People in Sweden, he explained, tend to wait until the rental period is over before seeking to get paid back excess rent rather than challenging their landlord while they are still living in the apartment. 

“You don’t have any legal protection for your home for the first two years, so if you bring the matter up with the person you’re renting the apartment from you risk losing your contract and having to move out, so most people wait until they’re supposed to move anyway,” he said.

If you apply to the rental board for a refund close to the day you move out, you can then make your landlord pay back all excess rent paid in the 24 months leading up to the date you contacted the rental board.

If you are a member of the Tenants’ Association, you can contact them and ask for help with your application, but there are also specialist companies, like Orimlig Hyra AB who will buy your case off you and give you a refund within 48 hours, saving you a long wait in exchange for a cut of the money reclaimed. 

Sjölin said that the rental board normally took about 8 months to come to a judgement, but that if the person with the first hand contract appeals, that could extend the waiting time by between six months and a year.

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