Friday 24 January 2020 4:19 am

Sweden’s disastrous experiment with rent controls should be a cautionary tale for London

Emma Revell is head of public affairs at the Institute of Economic Affairs

How to make excellent meatballs, win Eurovision with style, and start a domestic argument over flatpack furniture — Sweden has taught the world so much.

But setting aside our love of ABBA and Ikea, there’s another lesson to take from the experiences of our Scandinavian cousins.

Sadiq Khan will spend the first half of 2020 fighting the London mayoral election, and promoting rent controls as a possible solution to London’s housing crisis will be at the forefront of his campaign. 

So what insights can we gain from Sweden, a country which has had some form of rent control since 1947 when it was introduced as a supposedly temporary measure?

First, rents have only been kept low for a small section of Swedish renters. By restricting opportunities for landlords to provide a range of properties to suit all budgets, the controls have incentivised tenants to hang on to property they no longer wish to live in and sublet for significant profit, rather than returning the home to the local housing agency to be reallocated. 

Secondary tenants in Sweden pay on average twice as much as primary tenants, and the waiting lists to rent directly from the housing agencies have spiralled, with the average waiting time in Sweden’s capital being an eye-watering 11 years.

The system also entrenches disadvantage and segregation, with social mobility restricted because of the difficulty in moving cities. The long waiting times mean that younger renters and immigrants are more likely to struggle finding suitable accommodation, especially in popular areas, and can find themselves pushed into illegal renting. One of the main arguments in favour of rent controls is that they foster integration by ending segregation by income, yet Sweden shows us quite clearly how this has failed.

Bribery is commonplace too, with many high-profile examples of well-connected individuals paying to skip waiting lists and secure the best homes for themselves or family members.

The distorted housing market has knock-on effects. One in five Swedish businesses report that housing shortages, exacerbated by rent controls, have made it difficult to recruit staff. 

That is a lesson we should heed. Like Stockholm, London is a global hub for international businesses and relies on its ability to recruit from across the world. Were rent controls to be implemented here, it would severely impact the claim that the city is “open for business”.

A much better idea would be to review planning restrictions. Removing the “green belt” designation from just 3.7 per cent of protected, not actually green land around the capital could free up space for one million new homes and have significantly more impact than rent controls — all without the damaging social segregation and black market activity we’ve seen in Stockholm.

London will always be an attractive and popular global city, with people of all ages and backgrounds moving here to work and study, so we should not expect demand for housing in and around the capital to decrease any time soon. 

Rent controls might make sense as an election pledge — what renting voter wouldn’t like the promise of extra money in their pocket? — but we need to steer clear of gimmicks, learn lessons from countries like Sweden, and turn our focus on cutting red tape and building more homes, rather than artificially meddling in the market.

Main image credit: Getty

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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