A paper to ENHR 2015 Conference in Lisbon: ”Housing and Cities in a time of change: are we focusing on People? ”
You kan get the full paper on: http://svenbergen.se/Bostadspolitik-och-hyresmarknad/
Here is a summary:
Housing is a human right and a vital part in a well-functioning society. It affects the whole economy and peoples living conditions. Everyone needs safe and decent housing. Housing is not only the dwellings but also the communities around them. So we need a broad approach to housing. Housing is about safety and security, access to services of various kinds, communications, education, jobs, etc.
The housing market differs from any other market. It is extremely sensitive to changes in demand. Prices are rising when the demand increases and price pressure downward becomes strong when demand falls. This is because the supply only could change slowly. On increasing demand, it takes time to build new housing and when demand falls, it is difficult to adjust supply and individual investors and households can make large losses. Many researchers have emphasized the high volatility (strong swings up and down) that characterizes housing prices and believe that housing markets seem to have an inherent tendency to create bubbles, which can become a serious threat to financial stability.
The construction of new housing and other infrastructure investments, maintenance and energy-saving investments in homes and workplaces create jobs. Investing in existing properties to make money on capital appreciation creates in contrast no new jobs. The greater proportion of the total investments in already existing housing the smaller space will be left for investments in productive sectors of the economy.
In some countries it is today fiscally more advantageous to buy a home than to invest in a business. Higher prices and/or the rents mean less money for the households to spend on other commodities. That is why the housing policy has such a great influence on the whole economy.
The housing market has never been and could never become a market with perfect competition. No one of the conditions for perfect competition would be attained. So instead of making illusions and thinking that neo-classical economic theory could give any solutions we have to do empirical research, to look at the facts of the real world.
It seems that the European Commission, at least it’s Staff, have a lot to learn about economy in the real world. The advice which the Commission has given to the Swedish government about the rental market contains inaccurate information and conclusions based on outdated economic theory.
Different kinds of subsidies are necessary to achieve the goal that everyone should have decent and safe housing. Subsidies could have many forms: tax deductions, subsidies to social housing, housing allowance to households, subsidized loans and so on. Subsidies in the form of tax deductions generally benefit already economically well-off households the most.
Every subsidy should be subject to conditions to keep down prices and rents, i.e. not be possible to capitalize. The aim of the subsidy is to lower the prices and not to stimulate higher prices. Subsidies without conditions, e.g. mortgage interest deduction, on a “free” market, dope the market, stimulate speculation, contribute to increased prices on homes and construction, push up rents and decrease housing affordability especially in regions with high migration. The aim for any subsidy should be that prices and rents are lowered in an amount that corresponds to the value of the subsidy.
We have two main forms of tenure: ownership and tenancy. Tenure neutrality (or a tenure neutral policy) is a situation where households can have the opportunity to choose what kind of tenure which suits them best in their present circumstances. For example, many people cannot afford owned housing and may not be able to access a mortgage; many do not want to be confined to a dwelling for a long time due to fluctuations in the labour market; many do not want to have the whole responsibility for maintenance and repairs and students need temporary dwellings during their studies. Clearly the state should not support homeownership above rental housing.
Every country needs a transparent and well-functioning market for rental housing with a balance of interests between landlords and tenants. It also needs a good supply of affordable and decent housing. One of the main means of securing affordability and tenure is rent legislation, regulation and control. Rent regulation varies greatly between regions, but typically includes two main elements: (a) security of tenure, establishing a minimum duration of occupancy as well as limitations on the eviction of tenants; and (b) control on levels of price increase, intended both to preserve affordability and to preclude de facto economic eviction. In fact a well-functioning rental market needs these elements.
The rental sector is vital for the economy and labour market because it facilitates mobility. Wealthy nations as Switzerland, Germany and Austria have a high percentage of rental dwellings. There is a strong positive correlation between the percentage of people living in rented dwellings and gross domestic product per capita in Europe according to data from Eurostat.