The Swedish Housing Market: Structure, Policy Issues and Modeling

NOT FOR QUOTATION WITHOUT PERMISSION OF THE AUTHOR

THE SWEDISH HOUSING MARKET: STRUCTURE, POLICY ISSUES AND MODELING*

Alex Anas (Northwestern University,

Evanston, IZZ. ,

USA)

U l f J i r l o w (Stockhoh RegwnaZ Pknning Office) Jan Gustafsson (Stockhoh Research and

StatisticaZ Office)

B j o r n HBrsman ( S t o c k h h Regional PZanning Office) Fol ke Snickars

(ERU,

Ministry of Industry,

Stockhoh; and, University of

me&, Sweden) March 1985

CP-85-7

Contribution t o the MetropoZitan Study:

20

*An e a r l i e r v e r s i o n o f t h i s paper was presented a t t h e I n t e r n a t i o n a l Workshop on t h e B u i l d i n g Sector cosponsored by t h e Center f o r Energy and Environ- mental Studies, Boston, MA, USA, and t h e Center f o r Regional Science Research, Umeii, Sweden, h e l d a t Boston, May 16-19, 1984.

CoZZaborative Papers

r e p o r t work which h a s n o t been performed s o l e l y

a t

t h e I n t e r n a t i o n a l I n s t i t u t e f o r A p p l i e d Systems A n a l y s i s and which h a s r e c e i v e d o n l y

l i m i t e d r e v i e w . V i e w s

o r

o p i n i o n s e x p r e s s e d h e r e i n do n o t n e c e s s a r i l y r e p r e s e n t t h o s e o f t h e I n s t i t u t e ,

i t s

N a t i o n a l Member O r g a n i z a t i o n s , o r o t h e r o r g a n i - z a t i o n s s u p p o r t i n g t h e work.

INTERNATIONAL INSTITUTE FOR APPLIED SYSTEMS ANALYSIS A-2361 Laxenburg, A u s t r i a

CONTRIBUTlONS TO THE METRORXlTRN STUDP:

1 . A n a s , A. a n d L.S. Duann ( 1 9 8 3 ) Dynamic F o r e c a s t i n g o f T r a v e l Demand. C o l l a b o r a t i v e P e p e r , CP-83-45.

I n t e r n a t i o n a l I n s t i t u t e f o r A p p l i e d S y a t e m a A n a l y a i a (IIASA), A-2361 L a x e n b u r g , A u s t r i a .

2. C a s t i , J. ( 1 9 8 3 ) E m e r g e n t n o v e l t y a n d t h e M o d e l i n g o f S p a t i a l P r o c e a s e a . R e s e a r c h R e p o r t , RR-83-27. I I A S A , L a x e n b u r g , A u s t r i a .

3 L e s s e , P.F. ( 1 9 8 3 ) T h e S t a t i s t i c a l D y n a m i c s o f

S o c i o - E c o n o m i c S y s t e m s . C o l l a b o r a t i v e P a p e r , CP-83-51.

IIASA, L a x e n b u r g , A u s t r i a .

4 . H a a g ,

C .

a n d

W.

W e i d l i c h ( 1 9 8 3 ) An E v a l u a b l e T h e o r y of a C l a s s o f M i g r a t i o n P r o b l e m s . C o l l a b o r a t i v e P a p e r , CP-83-58. I I A S A , L a x e n b u r g , A u s t r i a .

5. B i j k a m p , P. a n d U. S c h u b e r t ( 1 9 8 3 ) S t r u c t u r a l C h a n g e i n U r b a n S y s t e m s . C o l l a b o r a t i v e P a p e r , CP-83-57.

IIASA, L a x e n b u r g , Aus t r i a .

6. L e o n a r d i ,

C .

( 1 9 8 3 ) T r a n s i e n t a n d A s y m p t o t i c B e h a v i o r o f a R a n d o m - U t i l i t y B a s e d S t o c h a s t i c S e a r c h P r o c e s s i n C o n t i n o u s S p a c e a n d T i m e . W o r k i n g P a p e r , UP-83-108.

IIASA, L a x e n b u r g , A u s t r i a .

7. F u j i t a , I¶. ( 1 9 8 4 ) T h e S p a t i a l G r o w t h o f T o k y o M e t r o p o l i t a n A r e a . C o l l a b o r a t i v e P a p e r , CP-84-03.

IIASA, L a x e n b u r g , A u s t r i a .

8.

A n d e r s s o n , A.E. a n d B. J o h a n s s o n ( 1 9 8 4 ) K n o w l e d g e I n t e n s i t y a n d P r o d u c t C y c l e s i n X e t r o p o l i t a n R e g i o n s . W o r k i n g P a p e r , UP-84-1 3. IIASA, L a x e n b u r g , A u s t r i a . 9 . J o h a n s s o n , B. a n d P . R i j k a m p ( 1 9 8 4 ) A n a l y s i s o f

E p i s o d e s i n U r b a n E v e n t H i s t o r i e s . W o r k i n g P a p e r , UP-84-75. I I A S A , L a x e n b u r g , A u s t r i a .

10.

W i l s o n ,

A . G .

( 1 9 8 4 ) T r a n s p o r t a n d t h e E v o l u t i o n o f U r b a n S p a t i a l S t r u c t u r e . C o l l a b o r a t i v e P a p e r ,

CP-84-41. I I A S A , L a x e n b u r g , A u s t r i a .

I ? .

A n a s , A. ( 1 9 8 4 ) T h e Combined E q u i l i b r i u m o f T r a v e l N e t w o r k s a n d R e s i d e n t i a l L o c a t i o n M a r k e t s .

C o l l a b o r a t i v e P a p e r , CP-84-42. I I A S A , L a x e n b u r g , A u s t r i a .

1 2 . B a t t e n , D., P . N e w t o n a n d J. Roy ( 1 9 8 4 ) R e s t e d D y n a m i c s o f M e t r o p o l i t a n Processes a n d P o l i c i e s -

M e l b o u r n e . C o l l a b o r a t i v e P a p e r , CP-84-47. I I A S A , L a x e n b u r g , A u s t r i a .

-

^{i i i}

-

1 . H a c k e t t , R . L . ( 1 9 8 4 ) R e s t e d D y ~ a m i c s o f M e t r o p o l i t a n P r o c e s s e s a n d P o l i c i e s - L e e d s . C o l l a b o r a t i v e P a p e r , CP-84-48. IIASA, L a x e n b u r g , A u s t r i a .

1 4 . D e n d r i n o s , D.S. a n d M . S o n i s ( 1 9 8 4 ) V a r i a t i o n a l P r i n c i p l e s a n d C o n s e r v a t i o n C o n d i t i o n s i n V o l t e r r a ' s E c o l o g y a n d i n U r b a n R e l a t i v e D y n a m i c s . C o l l a b o r a t i v e P a p e r , CP-e4-49. IIASA, L a x e n b u r g , A u s t r i a .

1 5 . B a t t e n , D . ( 1 9 8 4 ) T h e C h a n g i n g E c o n o m i c S t r u c t u r e o f M e t r o p o l i t a n R e g i o n s :

A

P r e l i m i n a r y Compare t i v e

A n a l y s i s . C o l l a b o r a t i . v e P a p e r , CP-84-50. I I A S A , L a x e n b u r g , A u s t r i a .

1 6 . F i s c h e r , H.M. _{a n d}

G .

H a i e r ( 1 9 8 4 ) S p a t i a l D i s c r e t e C h o i c e a n d L a b o r S u p p l y H o d e l l i n g : Some A l t e r n a t i v e P r o b a b i l i t y C h o i c e S t r u c t u r e s . C o l l a b o r a t i v e P a p e r , CP-84-51. IIASA, L a x e n b u r g , A u s t r i a

1 7 . T o r n q v i s t ,

G .

( i 9 8 4 ) C o n t a c t P o t e n t i a l s i n t h e E u r o p e a n S y s tem. C o l l a b o r a t i v e P a p e r , CP-84-55.

IIASA, L a x e n b u r g , A u s t r i a .

1 8 . Bima, A n n e m a r i e , Leo v a n W i s s e n a n d P e t e r B i j k a m p ( 1 9 8 5 ) T o w a r d s a n I n t e g r a t e d Dynamic R o d e 1 f o r Amsterdam. C o l l a b o r a t i v e P a p e r , CP-85-5. I I A S A , L a x e n b u r g , A u s t r i a .

1 9 . B e r t u g l i a , C.S., S. O c c e l l i ,

G . A .

R a b i n o ,

C .

S a l m o n e a n d R . T a d e i ( 1 9 8 5 ) R e s t e d D y n a m i c s o f M e t r o p o l i t a n P r o c e s s e s a n d P o l i c i e s : T u r i n . C o l l a b o r a t i v e P a p e r ,

CP-85-6. I I A S A , L a x e n b u r g , A u s t r i a .

2 0 .

A n a s , A l e x , U l f J i r l o w , J a n G u s t a f s s o n , B j 6 r n HHrsman a n d F o l k e S n i c k a r s . ( 1 9 8 5 ) The S w e d i s h H o u s i n g

M a r k e t : S t r u c t u r e , P o l i c y I s s u e s and M o d e l i n g . C o l l a -

b o r a t i v e P a p e r , CP-85-7. IIASA, L a x e n b u r g , A u s t r i a .

FOREWORD

Contribution

t o t h e

MetropoZitan Study:

20

The p r o j e c t "Nested Dynamics o f M e t r o p o l i t a n Processes and P o l i c i e s "

i s a c o l l a b o r a t i v e s t u d y w i t h i n t h e p r o j e c t area Regional I s s u e s a t IIASA.

The s e r i e s o f c o n t r i b u t i o n s i s a.means o f conveying i n f o r m a t i o n between t h e c o l l a b o r a t o r s i n t h e network o f t h e p r o j e c t .

T h i s paper r e p o r t s on a p e n e t r a t i n g i n v e s t i g a t i o n o f t h e housing market i n t h e Stockholm r e g i o n . I t i s based on a sequence o f i n t e r v i e w s and d i s c u s s i o n s w i t h v a r i o u s d e c i s i o n makers and managers whose a c t i o n s form an i m p o r t a n t market system. The paper examines t h e d e t a i l s o f t h e system s t r u c t u r e w i t h t h e o b j e c t i v e o f f o r m u l a t i n g a r e l i a b l e model o f t r a n s a c t i o n s , r e g u l a t i o n s , investments, e t c . The work on t h e model i t s e l f i s c u r r e n t l y underway and w i l l a l s o be presented i n t h e near f u t u r e .

The approach undertaken by t h e a u t h o r s i s o r i g i n a l i n i t s c a r e f u l t r e a t m e n t o f such system p r o p e r t i e s which c o n s t i t u t e d e v i a t i o n s from a f r e e market. Consequently, t h e paper p r o v i d e s an a l r e a d y t e s t e d g u i d e l i n e f o r t h e work on t h e housing s e c t o r i n o t h e r m e t r o p o l i t a n r e g i o n s i n t h e study.

Recently, t h i s t y p e o f work has been i n i t i a t e d i n s e v e r a l o f those r e g i o n s . I t i s b e l i e v e d t h a t t h i s work may b r i n g about a new g e n e r a t i o n o f housing s e c t o r modeling and a renewal o f t h e p e r t i n e n t analyses.

i k e E. Andersson

P r o f e s s o r o f Economics

Leader, Regional Issues P r o j e c t

ACKNOWLEDGEMENT

The research t h a t led t o this paper is partially supported by a United S t a t e s National Science Foundation g r a n t t o Alex Anas. The first author is indebted t o t h e Royal Institute of Science and Technology of Stockholm and t o t h e Stockholm Regional Planning O f f i c e for making desk space available, for providing t h e opportunity for several lectures and for helping with t h e gathering of significant background material.

Numerous individuals contributed information, guidance and opinion on various topics with which this paper is concerned. Their assistance is gratefully acknowledged and explicitly recognized throughout the paper. None of these individuals, however, a r e responsible f o r the contents of this paper, nor a r e t h e authors' s t a t e m e n t s a reflection of their opinions.

- ^{v i i} -

TABLE OF CONTENTS

. . .

INTRODUCTION 1

1 . STRUCTURE OF THE SWEDISH HOUSING SECTOR . . . ²

1.1 The State. t h e Counties and t h e M u n i c i p a l i t i e s . . . ²

1.2 Land Use and t h e Ownership. Supply and P r i c i n g o f Land . . . . ⁴

. . . 1.3 The Type. Q u a l i t y and Ownership o f t h e Housing Stock 6 1.4 Finance o f New C o n s t r u c t i o n and Modernization . . . ⁸

1.5 P r i c i n g . Rent C o n t r o l . Rent P o o l i n g and Rent N e g o t i a t i o n s . . . ¹⁰

1.6 The P u b l i c Queue: The Case o f Greater Stockholm . . . ¹³

1.7 Swapping. Black Markets. M o b i l i t y and Household Formation . . . ¹⁵

1.8 Housing Allowances . . . ¹⁶

1.9 Housing and Income Tax . . . ¹⁶

1.10 B u i l d i n g C o n t r a c t o r s and B u i l d i n g M a t e r i a l s I n d u s t r y . . . ¹⁹

. . . 2 . SWEDISH POLICY ISSUES AND ALTERNATIVES FOR REFORM 20 2.1 Swedish P o l i c y Issues . . . ²⁰

2.2 A l t e r n a t i v e s f o r Reform . . . ²¹

3 . ^MODELING . . . ²⁵

3.1 The Demand Side . . . ²⁶

3.2 The Supply Side . . . ²⁷

3.3 Use o f t h e Model i n P o l i c y A n a l y s i s . . . ²⁸

4 . REFERENCES . . . ³⁰

FOOTNOTES . . . ³²

THE

SWEDISH HOUSING MARKET: STRUCTURE, POLICY

ISSLES

AND

ttmoamG

INTRODUCTION

This paper i s a n examination of the Swedish housing s e c t o r institutions with particular emphasis on t h e public c o n t r o l measures on t h e demand and supply sides. Our observations are r e l e v a n t t o t h e metropolitan housing m a r k e t s of G r e a t e r Stockholm, G r e a t e r Gijteborg and G r e a t e r Malmo, although main points also apply t o the non-metropolitan p a r t of Sweden.

In the l i t e r a t u r e

on

t h e Swedish housing sector, a single comprehensive state- m e n t of how t h i s s e c t o r is structured, how i t o p e r a t e s and how i t is controlled by various government policy instruments, does n o t exist.' I t i s hoped t h a t t h e c u r r e n t paper provides t h e f i r s t comprehensive view t h a t c a n b e a s t a r t i n g point f o r future, m o r e detailed investigations.

The Swedish housing s e c t o r i s based on social values and a t t i t u d e s q u i t e d i f f e r e n t f r o m those prevailing in purely f r e e - m a r k e t oriented societies such a s t h e United States. I t i s t h e r e f o r e useful t o many s o c i e t i e s t h a t the Swedish situation b e evaluated f r o m t h e vantage point of f r e e m a r k e t urban and housing economics.

The f r e e m a r k e t perspective helps identify "distortions" which a r e induced by various government controls. F r o m t h e Swedish perspective, t h e s e a r e n o t distortions, b u t policy interventions justified for t h e s a k e o f distributive justice and entitlement. R e n t controls and t h e institution of rationing new dwellings a r e among such policy interventions. Nevertheless, t h e r e a r e s o m e important simi- larities (and differences) b e t w e e n t h e Swedish and American policies with regard t o t h e deductibility of home owners' i n t e r e s t payments, t h e taxation of c a p i t a l gains and t h e levying of a "property tax" proportional t o assessed value.

We identify a number of policy issues which a r e

clf

concern t o Swedish economists and politicians. These are t h e interactions b e t w e e n government subsidies, housing s e c t o r p e r f o r m a n c e and macro-economic policy, planning t h e expansion of the s t o c k by region and municipality, and t h e rationing of new dwellings m o r e efficiently.

Reforming t h e Swedish housing m a r k e t is also discussed by considering how t h e

m a r k e t and t h e institutions c a n b e reorganized in major ways. While such

reorganization may appear very a p p r o p r i a t e f r o m t h e f r e e m a r k e t viewpoint, i t

may be only partly desirable f r o m t h e Swedish viewpoint.

The paper also discusses the need f o r a mathematical, empirically workable and policy-oriented dynamic model o f the Swedish housinq market. The policy perspectives developed in the paper are candidates for empirical testing w i t h such a model. 2

Intentionally, the paper is k e p t free o f tables and figures even though much quantitative data has been examined in preparation. We wish the reader t o gain an accurate conceptual framework f o r thinking about the qualitative structure o f the Swedish housing m a r k e t and do n o t wish an extravaganza o f numbers t o cloud this objective. 3

STRUCTURE

ff lli€

SWEDISH HOUSING SECTOR

Sweden is the fourth largest country in Europe i n land area. Only 10 per cent o f i t s land is cultivated and 50 per cent is forest. The population is 8.3 m i l l i o n and the density only 20 inhabitants per square kilometer. The populations o f t h e three largest metropolitan areas are: Stockholm (1.39 million), Gijteborg (0.69 million) and Malmo (0.45 million), amounting t o 16.7 per cent, 8.4 per cent and 5.5 per cent o f the national population, respectively (Sweden, 1983).

The low population density and the abundance o f timber resources may suggest t h a t large Swedish c i t i e s would be sprawled and p r i m a r i l y consist o f spacious wooden single family homes. A number o f factors have contributed to t h e opposite; thus, Swedish metropolitan areas have a large share o f compactly b u i l t large m u l t i f a m i l y buildings and complexes. The important factors in this regard are the need t o conserve energy in heating and transportation, strong government c o n t r o l over building a c t i v i t y since World War

I1

and a national goal o f making social services easily accessible t o most inhabitants.

1.1 The State, the

Counties and the ~ u n i c i ~ a l i t i e a ~

Sweden's national or c e n t r a l government (hereafter, the State) consists o f twelve ministries, one of which is the Ministry o f Housing and Physical Planning, which is responsible f o r physical planning, housing provision and building. The country i s divided i n t o 24 counties which constitute a regional f o r m of government. The

County Administrative Boards coordinate State planning w i t h i n the county and a c t in a supervisory capacity, hearing appeals and r a t i f y i n g plans adopted by the municipalities, County Housing Boards come under the N a t i o n a l Housing Board and administer State loans and grants for housing provision.

The country is divided i n t o about 200 municipalities, Since 1945, there has been a gradual reduction in the number o f municipalities by consolidating them and thus improving efficiency i n public service provision. In the county of Stockholm, for example, the number of municipalities has been reduced f r o m 109 in 1945 to 25 in 1980, Greater Stockholm now consists of

22

o f these, excluding three peripheral municipalities, The largest municipality in Greater Stockholm is Stockholm c i t y which comprises the core o f the region. F o r a study o f the interactions o f State and municipal politics in the Stockholm region, see Anton (1975).

There i s a division o f responsibility between the State and the municipal governments. The State sets out the financial extent o f new housing construction and rehabilitation, provides aid in the form o f housing allowances and loans, interest subsidies f o r new construction and rehabilitation, enacts legislation and formulates taxation policy i n relation t o housing goals. The municipalities are responsible for physical planning and land policy, assessment o f l o c a l housing needs, granting housing allowances w i t h p a r t i a l state funding, and receiving and forwarding t o the c e n t r a l government applications f o r loans and grants.

Key legislation which regulates the planning process and building a c t i v i t y consists o f a number o f acts. The Building A c t contains regulations

on

the supervision o f the planning process and o f development procedures. The Building Ordinance regulates building permission and design standards, The Swedish Building Code regulates the detailed design and construction o f buildings. The

Pre-Errption

A c t enables the municipality t o take over the buyer's place, acquiring real estate changing hands in an ongoing transaction by paying t o the seller the p r i c e agreed upon between buyer and seller. The purpose o f this law is t o enable land acquisition in advance of urban development. The Expropriation A c t makes it possible f o r the municipality t o acquire land which is required f o r development. The N a t u r e Conservanscy A c t regulates adverse e f f e c t s from water and air pollution and noise.

Drawing i t s powers f r o m these legislative acts, Swedish municipal governments have strong control over land use and the housing stock. Municipalities own or can acquire substantial lands w i t h i n t h e i r domain. Thus they are the chief suppliers o f land t o developers and can designate the type and extent of development in binding master plans. Another means o f c o n t r o l is that munici- palities own the non-profit housinq companies which b u i l d and manage a large p a r t o f a municipality's rental housinq stock.

1 . 2

Land use and

the

ownerahip, a p p l y end p r i c i n g o f land

The municipality's master plan is the u l t i m a t e means which determines land use.

A master plan normally specifies the type of land use and amount o f floor space t o be b u i l t in each a r e a P r i v a t e landowners must request a plan for developing their land in a desired manner. I f the municipality denies them such a plan the p r i v a t e landowners do not generally have the r i g h t t o go t o court. Municipalities can refuse development requests f o r various reasons, including, for example, high costs o f supplying the land w i t h public infrastructure, u t i l i t i e s and public services.

Swedish municipalities have been buying, selling and leasing land for many decades. As a result they now generally own most of the land t o be used f o r urban development w i t h i n their jurisdictions. They are i n a strong monopoly situation w i t h respect t o housinq developments since these are heavily subsidized by the State subject t o a "land condition rule" which states t h a t a builder cannot in general g e t a subsidized loan unless the land on which he builds i s acquired f r o m the municipality. The most important exception f r o m this rule concerns construction o f detached single f a m i l y houses. Commercial and industrial development in Sweden is not subsidized and builders must obtain a loan a t the m a r k e t interest rate. Builders o f such developments are free t o build on non- municipal land b u t must, of course, abide by municipal approval based on the master plan.

When selling land t o developers, municipalities charge the cost o f acquiring comparable land a t the current t i m e plus the costs o f any land improvements and administration. In the case of housing developers, the principle t h a t the municipality should make no p r o f i t guides the transaction. I n the case o f non-

residential developers, t h e r e is no law against a t t e m p t i n g t o e x t r a c t t h e highest price t h e buyer is willing t o pay. If t h e municipalities do n o t sell t h e land a t very low prices, i.e. t o increase t h e employment possibilities for municipal residents, they t r y n o t t o exceed a conservatively e s t i m a t e d price. One reason for this is, of course, t h a t any s a l e price paid t o t h e municipality c a n be used by p r i v a t e landowners selling t o t h e municipality in t h e future, o r by o t h e r s whose land i s being expropriated by t h e municipality, t o argue t h a t they are entitled t o t h e s a m e p r i c e o r compensation.

Expropriation with a d e q u a t e compensation is a power of t h e municipalities, b u t they choose t o exercise i t with caution since i t c a n b e challenged in c o u r t with t h e municipality being liable f o r t h e legal c o s t s of t h e property owner at t h e pre- appellate level.

Often, municipalities choose t o maintain land ownership by leasing land t o be developed according t o plan. This a r r a n g e m e n t is known a s a lease-hold system.

The Stockholm municipality, f o r example, o p e r a t e s a l a r g e lease-hold system.

L e a s e values c a n b e changed a t fixed t i m e intervals which over t h e years h a v e been gradually reduced from sixty t o t e n years. This enables t h e municipality t o e x t r a c t f r o m t h e lessee t h e c u r r e n t value of t h e land, although l e a s e holders c a n have legal recourse.

The primary e f f e c t of t h e s e Swedish land ownership institutions is t h a t land speculation i s severely discouraged and successfully curtailed. Developers c a n obtain land a t low prices when buying f r o m t h e municipality f o r purposes of subsidized developments such as housing.

A

s e g m e n t e d land m a r k e t exists s i n c e commercial-industrial developments a r e free t o occur on private land and a t unrestricted prices a s long as they a r e consistent with t h e municipal land use plan. Municipalities rarely change their land use plans. This is in sharp c o n t r a s t with American zoning specifications which are frequently changed in t i m e s of development pressures. Since Swedish land use plans a r e s o stable, i t is rarely possible f o r p r i v a t e landowners t o profit f r o m anticipating changes in t h e s e plans; and, conversely, i t is equally r a r e t h a t municipalities have t o c o m p e n s a t e landowners who s t a n d t o lose f r o m changes in t h e land use plan.

Since landownership is s o highly centralized, t h e land "market" is not a

c o m p e t i t i v e one. Municipalities c a n f o r c e housing developments t o occur in

places where competitive market land prices would be too low t o allow development. This type o f p a t t e r n has appeared in some suburbs o f Stockholm. A consequence of this is t h a t turnover and vacancy rates in such places are observed t o be unusually high.

1.3

The

Type, Quality and

Ownership of the

Housing Stock

F i r s t o f a l l it must be emphazised t h a t houses in Sweden are b u i l t by p r i v a t e firms. The main exception is BPA, a construction f i r m owned by the trade unions. However, the orderers of new construction as regards m u l t i f a m i l y housing are, in most cases, non-profit companies owned by the municipalities or cooperatives.

The housing stock in Sweden can be grouped into three categories. These are as follows:

(a) Single family housing:

These dwellings are generally owner-occupied by families and they are mostly constructed by private builders, t o be bought and occupied by families. A striking aspect o f these dwellings is t h a t a large p a r t o f them is o f t e n planned i n t o subdivisions in which they are spaced closely. There are precise building standards which apply t o design and construction and careful attention is paid t o their p r o x i m i t y and relation to public facilities, shopping, open space and public utilities.

A substantial p a r t o f the single family stock is of older vintage and does not necessarily conform t o current building standards.

(b)

Coopetative Multifamily Buildings:

These dwellings are individual flats in m u l t i f a m i l y buildings and they are tenant owned. Owners have the same rights as single f a m i l y dwelling owners in purchasing and selling these units, except t h a t they are subject t o some c o n t r o l by the cooperative association in the areas o f repair and renovation. Also, the maintenance o f common facilities i n these buildings is financed by means o f an assessment levied on the tenants by the association. The Swedish cooperative market is t o some extent dominated by large cooperative associations. The largest are HSB and Svenska Riksbyggen which are nationwide associations w i t h branch associations i n counties, munici- palities and individual buildings.

(c)

Rental Multifamily B u i l d i m

A

large p a r t of the stock in Sweden consists of rental f l a t s in multifamily buildings. Approximately half of these buildings a r e owned and managed by private landlords. However, since World War 11, t h e bulk of multifamily buildings have been ordered by non-profit housing companies.

These companies generally retain ownership and management of the buildings.

Each municipality owns a t least one non-profit company. The Stockholm muni- cipality owns a number of such companies, t h e largest being AB Svenska Bostiider which has a holding of over 50,000 flats.

Tenants who obtain a f l a t hold an irrevocable lease and have t h e right t o remain in t h e f l a t indefinitely a s long as they conform t o t h e conditions of their lease and continue t o make rental payments.

I t is sometimes the case, and increasingly so in r e c e n t years, t h a t some privately owned rental buildings a r e converted t o t h e cooperative mode and turned over t o a cooperative association f o r management. This is usually possible if the owner wish t o sell and a majority of t h e tenants in a rental building vote in favor o f conversion.

Swedish multifamily buildings a r e generally compactly built and contain small flats. There is visible differentiation in architectural f e a t u r e s and in the number of stories by vintage. A g r e a t deal of this differentiation can be explained by changes in the building code and changes in construction c o s t s over time.

Building complexes constructed since World War I1 a r e generally carefully situated near transit stations and contain within them shopping facilities, recreational grounds and schools.

A t this point, i t is useful t o c i t e some aggregate statistics. In t h e year 1980, 44 per c e n t of Sweden's dwellings were single family and 56 per c e n t were multifamily. F o r Greater Stockholm, t h e corresponding percentages were 24 per c e n t and 76 per cent, f o r G r e a t e r Goteborg, 32 per c e n t and 68 per cent, and for G r e a t e r MalmB, 31 per c e n t and 69 per cent. While a nearly uniform 93 per c e n t of all single family dwellings around t h e nation was owned by private persons, t h e ownership of t h e multifamily stock exhibits more diversity among t h e three metropolitan areas. Non-profit companies (controlled by the munici- palities) owned 35 per cent, 42 per c e n t and 18 per c e n t of t h e multifamily stock in' G r e a t e r Stockholm, Gijteborg and Malmo respectively with cooperative

I

associations owning 25 per cent, 23 per c e n t and 40 per cent of the m u l t i f a m i l y stock

in

the respective metropolitan areas, and p r i v a t e persons and companies owning 39 per cent, 32 per cent and 39 per cent respectively (Statistics Sweden, 1983). These figures show t h a t despite the great g r o w t h o f cooperatives and non- p r o f i t r e n t a l dwellings a f t e r World War

11,

large p a r t s of the t o t a l m u l t i f a m i l y rental stock and predominant portions o f the older stock continue t o be owned by private landlords. f he figures also show t h a t there are significant differences among the metropolitan areas which are not entirely explained by the size o f these areas. The large proportion of cooperatives i n Malmo is one such difference.

L4 Finance

o f N e w C m s t r u c t i m

and

~ o d e r n i t a t i o n ~

As a rule, the Swedish State subsidizes nearly a l l new construction i n the housing sector. In contrast, other construction such as commercial and industrial is n o t subsidized. The subsidies take the f o r m o f State mortgage loans and guaranteed interest rates on f i r s t mortgage loans. The interest rates for both kind of loans are much below the m a r k e t rate.

Developers are free t o build w i t h market loans b u t the State subsidy is so large that any such construction is unprofitable. To qualify f o r a State subsidy a private builder or non-profit company must f u l f i l l the following requirements:

(a) it must build on municipally owned land and according t o the master plan, (b) it must conform t o the building code and (c) i t must apply for approval by the municipality demonstrating t h a t i t s estimated construction cost w i l l not be much i n excess of the "approved construction cost" for t h a t locality.

To f u l f i l l the last requirement the builder files an application which shows the calculation o f the "approved construction cost" for the proposed building by using unit prices published frequently by the government. I n addition t o this, the builder also estimates the actual construction expense t h a t w i l l be incurred, this number being generally higher than the approved cost.

If

the difference i s deemed too high, a State loan cannot be obtained.

The subsidized loan structure is as follows: F o r r e n t a l dwellings b u i l t by non- p r o f i t companies: 100 per cent of the "approved construction cost" receives a

subsidized loan, F o r cooperatives and single f a m i l y dwellings and p r i v a t e l y owned r e n t a l houses the cormsponding percentages are 9 9 per cent, 9 5 per cent and 9 2 per cent respectively. The unsubsidized p o r t i o n and any excess over the approved construction cost must be covered by a m a r k e t loan,

A mortgage loan equal t o

70

per cent o f the approved construction cost is obtained f r o m a bank, the State subsidizing this bank f o r the difference between market and loan interest rates, Recently, the m a r k e t r a t e on these bank loans has been 1 2 per cent and it i s adjusted a t five-year intervals. The subsidized loan interest r a t e f o r m u l t i f a m i l y construction is 3 per cent in the f i r s t year and rises indefinitely by an increment o f 0.25 per cent a year. F o r single family homes the loan interest r a t e i s 5.5 per cent in the f i r s t year and rises a t 0.5 per cent yearly u n t i l it catches the m a r k e t interest rate.

The remaining 30 per cent, 29 per cent, 25 per cent or 22 per cent o f the approved construction cost (for non-profit rental, cooperative, single family dwellings and privately owned rental, respectively), comes d i r e c t l y f r o m the State. The subsidized interest rates and annual increments for this p o r t i o n o f the loans are the same as for the bank loans. A peculiar aspect o f this subsidization scheme is the method o f amortization f o r these loans. The government has stated the goal (or expectation) t h a t the State p o r t i o n o f the loan be paid o f f in 30 years. However, for m u l t i f a m i l y houses this may or may not come about. The reason is t h a t the payments on the State loan which gradually increase are n o t applied toward c a p i t a l amortization u n t i l the interest r a t e catches the annually adjusted normal rate. Thereafter, any difference between the interest r a t e on the loan and the normal r a t e i s applied toward amortization. I f the normal r a t e goes over the subsidized rate, then amortization ceases. The peculiarity is that, conceivably, the subsidized r a t e may never exceed the normal r a t e and thus amortization may never begin. F o r single family houses the amortization o f the State loan starts immediately a f t e r the house is constructed and goes on f o r 30 years.

The bank p o r t i o n o f the loan f o r m u l t i f a m i l y houses is subject t o more r i g i d rules o f amortization. It is guaranteed t o be amortized in 50 years w i t h principal payments graduated in ten-year intervals. The equivalent t i m e f o r single family houses is 40 years.

The State and d s i d i z e d bank loans are in principle assumable by a l l future o w n e r a However, the f i r s t buyer of a single family home normally relieves the builder f r o m the market loan and pays the difference between the p r i c e and f i r s t mortgage plus state loan as a down payment. The same procedure applies t o cooperative associations. In a n e x t step the down payment i s distributed among the members, i.e. the households l i v i n g in the building.

In recent years, new construction a c t i v i t y in Sweden has diminished substan- tially, becoming replaced, in large measure, by reconstruction and modernization activity. Modernization refers t o major upgrading of a building, addition o f f a c i l i t i e s and repairs and, frequently merging flats w i t h i n the building t o create a smaller number o f larger flats. The State subsidizes modernization by loans t o be repaid within a maximum o f 30 years. These are also subject t o approval by t h e municipalities and excesses over approved costs must be covered by market loans.

Starting in 1984 the State also subsidizes loans fur repairs and maintenance in m u l t i f a m i l y houses. The loans are given by certain banks and the subsidy has the f o r m o f an interest guarantee. The subsidy is available for non-profit companies, cooperatives and p r i v a t e owners o f m u l t i f a m i l y rentals. The subsidy system is quite different f r o m the general interest subsidy system and it is e f f e c t i v e f o r 10 or

20

years due t o the d i f f e r e n t measures f o r improvement i n the building.

1.5

Pricing, Rent Control, R e n t Pooling and R e n t Negotiations 6

In Sweden, the pricing o f the housing stock follows the principle t h a t munici- p a l i t y owned companies should n o t make a p r o f i t or, in the case o f p r i v a t e landlords, not more than a small margin o f profit.

F o r single family (owner-occupied) dwellings, this principle is enforced by regulated pricing. A builder sells these dwellings a t the approved p r i c e which is set a t the t i m e of the subsidized loan application. These prices are set t o cover precisely the builder's estimated construction cost, assuming these estimates are n o t high enough t o result in rejection o f the application. When a builder sells a t this price, the buyer, usually a household, makes a down payment equal t o the unsubsidized portion o f the builder's loan and assumes the subsidized State and

bank loans. If such a buyer (the first-owner) wishes t o resell t h e dwelling within t h r e e years, h e cannot sell a t any price, if t h e s t a t e loan is t o be kept.

Thereafter, prices are entirely f r e e and subject t o t h e forces of supply and demand. As regards cooperative dwellings the t e n a n t can sell anytime a t any price.

R e n t control is a very important f e a t u r e of t h e Swedish housing market and has been t h e focal point of study, d e b a t e and reform (Kemeny, 1981; Turner, 1982).

The principle is again t o set r e n t s throughout t h e lifetime of a dwelling in such a way as t o cover t h e construction, maintenance and operating costs of t h e dwelling s o t h a t t h e owner, a non-profit company or private owner, makes no profit.

W e now turn t o a n examination of the non-profit company, which is essential t o understanding t h e concept of r e n t pooling. A non-profit company c o n t r a c t s a building firm t o construct rental housing and t h e r e a f t e r owns and manages the rental units. The principle of no profit applies a t t h e company level. Annually, e a c h company t o t a l s the costs of i t s entire stock. These costs include t h a t year's loan payments plus a n e s t i m a t e of maintenance, operation and any new con- struction costs. Also included a r e any funds needed t o replenish the company's reserves. Dividing this t o t a l c o s t e s t i m a t e by t h e number of rental dwellings in t h e company gives t h e average r e n t per dwelling in the company. This average r e n t is then adjusted for various dwellings in the company according t o size, age- standard and other factors. This process of r e n t pooling and adjustment is resolved in annual negotiations between representatives of e a c h non-profit company and representatives of t h e tenants of t h a t company, who a r e members of t h e national tenants' association, and regional or municipal representatives of t h e tenants' association. During these negotiations, the tenants' association examines t h e company's bookkeeping and requires t o see income from interest and other investments of t h e non-profit companies.

Tenants a r e o f t e n opposed t o pooling and new construction by t h e company,

because in t i m e s of rising construction costs, pooling increases the rents of

existing tenants. The companies' e f f o r t s t o adjust r e n t s by size and standard do

not resemble a m a r k e t adjustment. In 1972, a national committee composed by

representatives of t h e non-profit companies association (SABO) and the tenants

association recommended t h e use of a point system which assigns points t o

buildings by their age and then makes adjustments f o r location, social services, commercial services, etc. This point system is n o t used in any f o r m a l way nor does i t seem t o have any scientific o r statistically valid rationale. In any event, such a p o i n t system would only work in bringing r e l a t i v e rents w i t h i n a company more

in

l i n e w i t h a free market r e n t structure, b u t cannot correct the discrepancy in rents among companies.

7

Clearly, d i f f e r e n t non-profit companies must charge very d i f f e r e n t average rents i f they have significantly d i f f e r e n t construction profiles over time, namely different vintage mixes. F o r example, new companies which were set up i n the sixties t o build in the new suburbs o f Stockholm would charqe rents much higher f o r flats identical t o those held by older companies which b u i l t in Stockholm during the fourties and fifties. A r e f l e c t i o n o f this r e n t pooling scheme i s t h a t the rent f o r the same type o f f l a t increases w i t h distance f r o m the c i t y center, contrary t o what would be normally observed i n a free market.

Another e f f e c t of r e n t pooling is observed in Stockholm where the municipal companies o f the c i t y o f Stockholm have, in the past, b u i l t housing on land bought or leased f r o m suburban municipalities. The costs o f these relatively new outlying buildings are pooled w i t h the older and centrally located buildings owned by the same company. Thus, tenants in these buildings can end up paying rents which are much lower than the rents paid by tenants in the stock b u i l t by the suburban company.

Another issue which features prominently i n the negotiations is the cost of vacancies in the stock of a company, particularly any newly b u i l t stock. A position formulated by SABO is t h a t the municipalities should subsidize the cost of vacancies in excess of

1.5

per cent of the potential t o t a l r e n t income. This is negotiated w i t h each municipality and most have agreed t o follow this practice.

Negotiations are held once a year t o set the rents o f the following year. The tenants' association negotiates separately w i t h each company and also w i t h the local association o f p r i v a t e landlords. I f a specific set of negotiations w i t h a non- p r o f i t company is deadlocked, the case i s appealed t o the "national committee on the rental market", which consists o f o f f i c i a l s elected f r o m SABO and members o f the tenants' association. This c o m m i t t e e then decides on a compromise r e n t level f o r the coming year. The associations o f p r i v e landlords cannot appeal t o this committee, b u t instead can seek recourse in the courts.

I t appears t h a t t h e r e is substantial variance in t h e negotiating powers of different non-profit companies and their respective tenants. Even though non- profit, a few companies have accumulated reserves, while most o f them have survived on much tighter budgets.

Throughout Sweden t h e r e i s a policy, followed with various degrees of con- sistency, t o ration new dwellings in municipal queues. In this paper we will focus on how this is done in G r e a t e r Stockholm where t h e 22 municipal housing agencies have been consolidated into the Stockholm Federation of Municipal Housing Agencies (KSB), thus creating a single public queue a t t h e metropolitan level, into which all dwellings available for rationing a r e pooled.

There is a complicated set of rules t h a t govern how KSB rations dwellings. By law, all dwellings built since 1968 with government loans (this includes rental, cooperative and single family homes) a r e available t o be claimed by KSB every time they a r e ready for letting. However, KSB chooses t o exercise this right differentially. KSB does not exercise the right t o sell single family homes the first time, but will l e t them

if

they a r e rental single family homes. In t h e c a s e of cooperatives, t h e r e a r e special agreements between KSB and particular coope- rative associations. The agreement with HSB is t h a t this association should sell all of i t s new cooperative flats. Riksbyggen, on t h e o t h e r hand, gives all of i t s cooperative units t o KSB for rationing. Agreements with other associations provide, f o r example, t h a t they assign 50 per c e n t o f their new cooperative units t o specific banks which in turn ration these units t o their customers who raise t h e down payment by participating in the banks' savings programs for coopera- tive tenant ownership.

In addition t o all t h e newly built rental dwellings, KSB also handles around 50 per c e n t of t h e vacancies in t h e existing stock. The remaining half is available for rental directly from private landlords.

It is estimated t h a t approximately

15 per c e n t of t h e t o t a l mobility in G r e a t e r

Stockholm is handled through KSB. On t h e supply side of t h e queue there is a rule

t h a t KSB has approximately t h r e e months t o fill a flat. If a f l a t is not filled in

this period, i t

is

returned t o t h e landlord or non-profit company who generally p r e f e r t o d o t h e i r own l e t t i n g unless the f l a t in question is in a difficult-to-rent location.

T o obtain a f l a t f r o m KSB, a household fills o u t a n application describing i t s c u r r e n t dwelling and i t s desired dwelling, and a maximum r e n t i t i s willing t o pay for it. This application must b e renewed annually if t h e household remains in t h e queue t h a t long. A household receives a maximum of t h r e e r e n t a l o f f e r s and is e j e c t e d from t h e queue if it r e j e c t s those offers. In f e w c a s e s i t happens t h a t a landlord o r non-profit company will object t o a t e n a n t assigned by KSB. In such cases, KSB c a n g o t o c o u r t on behalf of t h e tenant, b u t this rarely happens.

Another rule is t h a t if a c u r r e n t t e n a n t is assigned t o a dwelling by KSB, t h e n t h a t tenant's vacated dwelling must be turned over t o KSB for reletting.

O u t of t h e t o t a l number of f l a t s t h a t KSB handles, roughly around 20 per c e n t is allotted t o households with s e v e r e medical o r social problems and households which must be e v a c u a t e d because their f l a t s a r e beeing reconstructed.

F o r t h e remaining 80 p e r c e n t of t h e f l a t s KSB uses a six priority classification of households according t o assessed need. Priority one includes households dislocated because of various emergencies such a s fire etc. and families in heavily overcrowded flats. Priority t w o consists of households with children, b u t living for instance with t h e i r p a r e n t s or in substandard flats. Priority t h r e e c o v e r s households without a f l a t b u t with children t h a t c a n s t a y elsewhere ( a s o c c u r s a f t e r a divorce when children can s t a y with one parent). Priority four includes mainly households without children and with a substandard flat. Priority five c o v e r s households which want t o swap their flats. Also in this priority a r e those who have a cooperative and want t o move t o a r e n t a l unit. Finally, priority six consists of households which d o not currently live in G r e a t e r Stockholm b u t n e e d t o move in.

T h e above assessments of need t a k e precedence over t h e t i m e an applicant h a s

b e e n waiting in t h e queue. However, when need is equal, then t h e t i m e one has

been waiting in t h e queue is a deciding factor. The t i m e a household spends

waiting in a queue c a n vary enormously depending on t h e location, t y p e and price

of t h e desired flat.

L7 S w i n g ,

Black

Markets, Mobility end

Household

Formation

Although the public queue i s extremely important because it is the only means by which new r e n t a l dwellings are l e t and a very v i t a l means o f entering the market f o r some households, it amounts t o only about

15

per cent o f m o b i l i t y in Greater Stockholm,

The predominant and legal means o f relocation is the swapping of one dwelling f o r another without any side payments, Such swaps can occur between two tenants or an owner and a tenant and are generally believed t o be responsible for perhaps

75

per cent of t o t a l household mobility. Swappers find each other through newspaper columns, through the services of realtors or through friends and acquaintances, Two households getting married w i l l o f t e n swap their two units w i t h the one u n i t of a household that is undergoing a divorce. There are generally no restrictions on the nature o f the swaps that can be undertaken.

It appears that Swedish regulations are unclear about what constitutes legal pricing during a swap. F o r example, i t is legal to swap one's cooperative u n i t w i t h a tenant's apartment. I f the apartment is a t t r a c t i v e and w e l l located, the owner of the cooperative may substantially lower the selling price. Does this constitute a fair transaction or a black market transaction?

Swapping differs f r o m what might be called a d i r e c t black market transaction, which is clearly illegal. While i t is not illegal t o pay t o get a r e n t a l contract it is illegal t o receive payment. Financial penalties and j a i l sentences may be enforced, Black m a r k e t transactions are believed t o be significant b u t n o t very large,

It is obvious that these institutions o f swapping, black markets and the public queue have a pronounced impact on household formation and mobility. New households w i t h young members do n o t have a f l a t t o swap nor the income t o buy and are thus restricted t o entering the public queue. Since this queue i s not as e f f i c i e n t or fast as a free m a r k e t can be, it is reasonable t o conclude t h a t i t retards household formation, forcing these young households t o remain longer w i t h their parents or to join i n t o other forms o f co-tenancy.

Swapping and the black m a r k e t also retard mobility because they involve

proceares of matching and search which are much more cumbersome and risky than

those

of a f r e e market where vacancies c a n be rented directly from t h e landlords

on

a first-come, first-served basis a t t h e going rent.

The Swedish S t a t e and municipalities jointly administer a system of housinq allowances designed t o improve the housing consumption of certain household groups. The percentaqe of r e n t to be covered by the housinq allowance is determined on t h e basis of household income and wealth, the r e n t or price t o be paid by t h e household, and number of children. There is also a special municipal allowance system for pensioners. Households a r e eligible for allowances regard- less of dwelling type and tenure.

In 1981, t o t a l housinq consumption expenditures amounted t o 20 per c e n t of t o t a l private consumption, a percentaqe which has remained stable over t h e years. In t h e same year, about 9 per c e n t of t o t a l housing consumption expenditures were paid a s rent allowances and another 12 per c e n t of housing expenditures was paid in interest subsidies. Thus 22 per c e n t of t o t a l housing expenditure was sub- sidized in allowances.

In summary, even though the purpose of rent control in Sweden is intended t o keep down the average cost of housing, t h e S t a t e and municipalities recognize t h e need of many groups and contribute significantly in an e f f o r t to improve their housing consumption relative t o the rest of t h e population.

A

large number of households receives such allowances, although the bulk of t h e payments a r e concentrated on pensioners and those underconsuming housing.

1.9

Haainp

and

the Income ax"

Sweden is a country with extremely high income taxation. Thus, income tax subsidies t o homeowners, landlords and non-profit companies which own housing a r e of special significance. The S t a t e income tax is progressive for individuals.

The municipal t a x is not progressive and although i t varies somewhat by

municipality and is set annually, it is generally around 30 per c e n t of income and

is divided roughly equally between the county and the municipality. The t o t a l income tax r a t e f o r t h e average industrial workers i s about

40

per cent and t h e marginal income tax r a t e is a b w t 65 per cent. F o r companies t h e income tax is around

52

per cent o f n e t taxable income.

The treatment o f housing w i t h i n the Swedish income t a x system relies on

"assessed (or taxation) valuen. In Sweden, buildings are assessed every five years and the aasessed value is defined

as 75

per cent o f t h e estimated fair market value.

Housing is an asset t o which income is imputed. Non-profit companies and cooperative associations impute a f l a t 3 per cent of assessed value. Owners o f single f a m i l y homes must impute as income a percentage which increases w i t h assessed value. A t present, this percentage starts a t

2

per c e n t and increases t o 0 per cent. F r o m the imputed income, the owner subtracts interest payments. If, i n this calculation, the dwelling generates a loss, as is usually the case f o r owners o f single family housing, the loss can be n e t t e d against other income.

Starting in 1983, there i s a new rule which w i l l go i n t o f u l l e f f e c t in 1985. This rule w i l l l i m i t the taxes saved f r o m the ownership o f single f a m i l y housing, by the deduction o f loss due t o interest payments, t o no more than 50 per cent o f taxes. This r u l e applies in f a c t t o a l l losses due t o interest payments.

Independently of the imputed income calculations, a l l housing owners pay a

"property tax" t o t h e municipality. This tax is computed by adding 1.5 per cent o f the assessed value t o the income taxable by the municipality.

A second aspect concerns the treatment o f c a p i t a l gains and losses i n the income tax system. In Sweden, income f r o m the sale of an asset i s ordinary taxable income, b u t housing is afforded special treatment as in the U n i t e d States. I n this case the taxable c a p i t a l gain is the "real capital gain", i.e. an adjustment is made for inflation. Starting in 1981, the State introduced a change i n this method in order t o 'discourage short-term speculation in home ownership. This change prohibits the use of the i n f l a t i o n f a c t o r f o r sales t h a t occur w i t h i n f i v e years o f the purchase o f housing. Thus, unlike the U.S. t a x system which taxes only nominal c a p i t a l gains, the Swedish system taxes nominally only short-term capital gains. As in the U.S., capital gains f o r homeowners are postponable under

certain rules. T h e w

am

t h a t the gain exceed a minimum amount, t h a t the owner must have been the occupant f o r a t least three out of the f i v e years immediately preceding the sale, and t h a t a more expensive house be bought w i t h i n one year of the sale. A capital gain realized f r o m a cooperative dwelling i s fully taxable only i f the dwelling was held less than t w o years. The percentage of the c a p i t a l gain which i s taxable falls t o 25 per cent when the ownership period exceeds f i v e years. Assessed values f o r cooperative buildings are prorated t o specific units on the basis of their aham

in

floor space. Interest i s paid d i r e c t l y by the association and deducted

in

i t s income tax calculations, whereas c a p i t a l gains and losses are taken by the individual tenant-owner.

A n income tax feature which concerns owner-occupiers and r e n t s alike is t h a t housing allowances are tax-free.

The deductibility of interest payments has a substantial e f f e c t on the n e t housing expenditures of the owners of single family homes. In the year 1981, the t o t a l

"foregone tax revenues" for owners o f single family houses corresponded t o 20 per cent o f t o t a l housing consumption expenditures by a l l households i n t h a t year.

Since 1983 a special tax i s levied on r e n t a l and cooperative houses b u i l t before 1975 w i t h the exception o f those b u i l t or reconstructed w i t h the support o f State loans a f t e r 1957. The tax for 1983 was

1

per cent of the assessed value and is raised t o 1.5 per cent and 2 p e r cent f o r 1984 and 1985 respectively. The tax i s somewhat inaccurately called the ' h n t a l h o u s e - f e e " and i s m o t i v a t e d on p a r i t y grounds since the guaranteed interest r a t e f o r the subsidized housing is con- tinuously raised by 0.25 per cent per year, compared t o

0.5

per cent per year f o r single f a m i l y housing.

According t o a recent government proposition the rental-house-fee is t o be replaced in 1985 by a

new

state property tax m o t i v a t e d by fiscal needs. F o r privately owned r e n t a l houses the tax r a t e i s 2 per cent of the assessed value and the tax i s deductible. F o r non-profit companies and cooperatives the r a t e is 1.4 per cent o f the assessed value and the tax is non-deductible. F o r single family houses the taxe r a t e f o r 1985 is 0.5 per cent of 1/3 of the assessed value.

F o r 1986 and 1987 the tax r a t e for these houses increases t o

1

per c e n t and 1.4 per cent respectively. F o r single f a m i l y houses the tax i s not deductible.

The parliament i s expected t o consider t h e proposition late in t h e fall of

1984.

The minister for housing will l a t e r this year propose an adjustment (decrease) of the guaranteed interest levels for subsidized housing in order t o avoid the e x t r a burden

ctn

these dwellings which will occur otherwise.

Starting in

1984

a new s t a t e t a x is introduced in Sweden called t h e "profit- sharing-taxn. The revenues of this t a x a r e funnelled into five wage- earners' funds. As t o the housing m a r k e t t h e new tax i s levied upon private house-owning companies (non-profit companies and cooperatives a r e excluded and so a r e also private persons). The t a x amounts t o

20

per c e n t of a calculated

"profit" since t h e assets and liabilities have been adjusted for inflation according t o a complicated formula. I t is still unclear how high the profit-sharing t a x will be a s a percentage of profit in these companies calculated in a normal way.

1.10 Building C o n t r a c t o r s and

the

Building Materials 1ndustry12

Although the pricing of all new housing

is

subject to t h e stringent controls discussed above, t h e Swedish industry of building contractors is competitive and free of government controls. There a r e between

10

and

15

large building contractors which dominate t h e multifamily market, and a vast number of smaller c o n t r a c t o r s operating in t h e single family sector. In t h e multifamily market during t h e seventies t h e f i r m s either carried losses or made small profit margins. Larger profit margins could be made in the building of commercial and industrial developments which were not subject t o r e n t contrul measures.

In contrast t o t h e contractors, t h e industries for most building materials a r e highly monopolized. R a t e s of r e t u r n on working capital in various building materials industries s e e m t o be higher than the average f o r all of Swedish industry. F o r example, t h e ready-mix concrete industry (in which firms have g r e a t spatial monopoly power because of distance constraints in t h e shipping of this material) and t h e wall paper industry, which is highly monopolized, have shown r e c e n t returns on working c a p i t a l of

20

per c e n t and higher.

A working hypothesis for the r e c e n t price inflation in building materials (which

exceeds the general inflation) is t h e decline in new construction and t h e increase

in modernization

and

reconstruction. This shift h a s greatly shrunk total building volume, forcing these industries t o raise prices t o cover fixed costs incurred in

the

past.

One

disturbing aspect of the high degree of monopolistic market structure

in

t h e Swedish building materials industry is t h a t price-setting in this industry c a n d e f e a t t h e purpose of cost-covering r e n t control t o keep r e n t s low. Profits, which in a free m a r k e t would accrue t o landowners, could t o a g r e a t e x t e n t pass on t o t h e suppliers of building materials whose price setting behavior is unregulated.

SWEDISH POUCY ISSUES AND

ALTERNATIVES FOR REFORM In this ssction we first discuss some policy issues within the institutional s t a t u s quo. These issues c e n t e r on various means of fine tuning the performance of t h e housing sector. Next we discuss, f r o m the f r e e market viewpoint, major alternatives for reforming the current institutional structure.

2.1 Swedish Policy Issues

One a r e a of major policy concern in Sweden is the interaction between macro- economic policy and t h e housing sector. The S t a t e and municipalities induce major changes in supply and demand a s a result of their assistance and control policies. The induced changes in turn influence municipal and S t a t e revenues and thus have a d i r e c t bearing on fiscal balance a t the local and national levels.

Furthermore, Swedish subsidy structures a r e not a t steady s t a t e and changes a r e continually introduced. There is, a s well, t h e more routine problem of annually adjusting housing allowances, and t a x rates. A major problem, therefore, is the macro-economic impact of the government's own housing policy a s well a s the impact of such policy on the housing m a r k e t and the housing stock and t h e bui1,ding c o n t r a c t o r s and building materials industries. Can these interactions be controlled and predicted in such a way t h a t changes in the current public assistance s t r u c t u r e c a n be introduced consistently and with stability?

An a r e a of particular importance is the volume of building activity t h a t should