Thursday, May 19

Sweden’s government could be about to collapse in line for rent

The Swedish government is on the brink of collapse.

Prime Minister Stefan Löfven received an ultimatum: withdraw his plans to implement reforms to the laws governing Sweden’s rental market or face a vote of no confidence on Monday.

But while the timing of this crisis may come as a surprise, the fact that it happened was inevitable.

From day one, the Left Party made clear that it could not keep the government alive if it decided to let market forces drive rental prices.

It is just the last row in Sweden’s current “red-green” minority government, which was founded in January 2019.

The cabinet, made up of Social Democrats and the Green Party, has only 116 seats out of 349 in the Swedish Parliament, about a third.

While keeping its formal supporters, the Center Party and the Liberals, happy, the government has had to exercise caution not to wake up the Left Party.

Now, Löfven seems to have lost his balance.

With the Left Party losing its confidence in the government, right-wing Swedish Democrats on the opposite side of the political spectrum seized the opportunity to call for a vote of no confidence.

The other two opposition parties, the Liberal-Conservative Moderate Party and the Christian Democrats have also announced that they are ready to overthrow the government.

Politically weak government

Minority governments are the rule in Sweden, but this government has had an extraordinarily difficult time, said Professor Ulf Bjereld of the University of Gothenburg.

“This is a politically very weak government as it relies on support from both the left and the right to function,” he said.

After months of failed negotiations since the September 2018 general elections, the Swedish Social Democrats and the Green Party finally found a way to form a government, Löfven’s second, in January 2019.

The solution was a 16-page document, called Januariavtalet, which stands for the January Agreement. In the agreement, the Center Party and the Liberals promised to abstain from voting against Löfven as prime minister.

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However, this promise came with a price tag. The Social Democrats had to accept a long list of political initiatives that are not typical of a Labor party, among them the promise to allow the landlords to set the rents of their properties.

“This is a commitment that they were forced to make. They had to do everything possible to be able to secure the cabinet, ”explained Bjereld.

A new way of fixing the rent

In the past, the amount of rent to be paid by the three million tenants in Sweden was decided through collective bargaining.

Instead of direct negotiation between landlords and tenants, the Swedish tenant organization Hyresgästföreningen enters into agreements with landlords on behalf of all tenants. This makes it difficult for landlords to increase the rent without first negotiating with the tenant organization.

This is, said Martin Hofverberg, chief economist at Hyresgästföreningen, one of the main reasons why rents in popular urban areas, such as Stockholm, have not risen as fast as in other capitals.

“The Swedish model is unique,” Hofverberg said. “It is somewhere between a market system and strict regulation. It is a flexible system that also takes into account quality parameters when setting the rent ”.

But if you ask the Swedish Property Federation, Fastighetsägarna, the current system is far from flexible enough.

“When the collective bargained rents are far from the market rents, you wait several years to get an apartment or you turn to a growing black market. The limited reform on the table is about making investments in newer and more affordable rental apartments possible where demand is high, ”said Policy Director Martin Lindvall.

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He argues that this proposal would make Sweden a more attractive place to build new residential buildings, as would the political parties that support the proposal.

“If the rental configuration better fit the market over time, our members’ willingness to invest would increase,” said Lindvall.

In his opinion, this problem has been inflated into something much bigger than it really is.

“This will only affect very few people. The proposal would only mean that owners of apartments built after July 2022 would have the right to choose whether to bargain collectively or directly with the tenant. “

The Finnish example

The rental housing market in neighboring Finland has been raised time and again in the Swedish debate.

In the early 1990s, when Finland went through a major economic crisis, the Finnish rental market went from highly regulated conditions to free market conditions in just a few years.

“It was too radical,” described Anne Viita, president of the Finnish tenant organization, Vuokralaiset.

Explain that in Finland, landlords can terminate rental agreements if tenants do not accept a rent increase.

“The Swedish model has always been seen as an ideal,” he said, warning the Swedes against making an irreversible move that they might later regret.

Tenants, the Left Party and others, who are against the new rent fixing proposal, see Finland as an example of where Sweden could be headed.

“It would worsen the tenants’ bargaining position,” said Martin Hovferberg, representing the Swedish tenants.

He explained that renting a house in a newly built building in Sweden is not cheap today either. However, collective bargaining evens out the differences between new and existing housing for 10 years or more.

“This new model would mean that the rent would start high and continue to increase,” he argued.

Martin Lindvall of the owners found the comparison with Finland unfortunate.

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“It’s like comparing apples to bananas.”

“The free rental facility for new production is already a controversial issue in Sweden. We have no preconditions to go ahead with this deregulation, “Lindvall said.

What can Löfven do next?

For political analyst Ulf Bjereld, the moment of crisis is not surprising, but it was not inevitable.

It was sparked by a report on new legislation for setting rental prices for new homes that came out on June 4. The draft is now available for consultation, and the bill itself may not be submitted until the fall.

“The Left Party does not want to wait that long, as the next general elections are scheduled for next year,” Bjereld said.

“This is ideologically very important for the Left Party. This can mobilize their own voters, but some left Social Democrats also support the left in this.

“The Left Party is afraid of being seen as too complacent,” he added. “It’s basically been a question of when not if the party would say no.”

Now, Löfven has three alternatives, according to Bjereld.

“The most likely scenario is that he will use the time until Monday to negotiate an agreement that all parties can accept,” he said.

The prime minister himself assured at a press conference on Friday that “of course we are working to avoid a crisis.”

The second alternative is for the Swedish parliament, Riksdagen, to force him to resign. This would mean that Sweden would be governed by an interim government, probably led by Löfven.

“The least likely alternative is for Löfven after seven unstable years as prime minister to call snap elections,” Bjereld said.

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