The future of the private rental sector in sweden

Abstract

The private rental sector in Sweden is competing on a less-regulated and less-subsidized housing market. The paper analyses the prospects of this sector. The private sector has the dual advantage of an older (more attractive and centrally located) stock and a slightly beter-off tenant profile than the municipal sector. Thus, the private sector will be less affected by the withdrawal of interest subsidies, as these were given to new stock. The rent-to-income ratio will surpass 30 per cent in all sectors of the housing market in the year 2002, according to a recent projection. The private sector suffers less from vacancies than the municipal sector. The economic situation is, however, characterized by high LTV ratios, due to a price and borrowing boom in the late 1980s. This has led to bankruptcies and a weak economic situation for many private landlords. The boom was followed by a bust in 1990–93. Both the upswing and the downturn can be explained by fundamentals such as changes in GDP, unemployment, housing subsidy and tax rules. In the present recession, the private rental sector will benefit from its large share of small dwellings, which will also be advantagenous in the longer run, in view of the demographic trend towards more small households. There is fierce competition between the private and the municipal housing sector. In the short run, the private sector will benefit from the removal of interest subsidies. The effects will be felt in the younger municipal sector. All in all, both short-run and long-run considerations point at a housing market in Sweden which will keep its dualistic character of free competition between the private and the municipal sector in the future.