The Property Ladder and The Queue

The property market in Sweden and the UK are vastly different - a point vividly illustrated when trying to move between the two countries.

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Addendum 17-08-2011:
Sweden's most reputable daily newspaper ran an article today which illustrates the situation I am relating in this blog post. This quote from the article is the most striking example of the Swedish property market situation - where waiting has become currency:

"Do you understand that tenants who have invested decades of waiting time in public housing get upset?"

The original article (in Swedish) can be found here:

http://www.dn.se/sthlm/hon-kan-snuvas-pa-17-ar-i-bostadskon

A direct Google Translate to English - comprehendible although somewhat funny - can be found here:

http://translate.google.com/translate?js=n&prev=_t&hl=en&ie=UTF-8&layout=2&eotf=1&sl=auto&tl=en&u=http%3A%2F%2Fwww.dn.se%2Fsthlm%2Fhon-kan-snuvas-pa-17-ar-i-bostadskon&act=url

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Sweden has a long tradition of life-long renting, particularly in urban areas. Buying a flat was by many considered a slightly suspicious activity well into the eighties. It is in fact not possible to actually own a flat in Sweden at all under normal circumstances - you own a share in the company that owns the building and are thus granted the right to live in a certain flat and engage in light DIY. You are allowed to buy and sell these "accommodation-rights" as they are referred to, but are also required to pay a monthly fee to the holding company.

What you can and can't do in an accommodation-right is tightly regulated. You cannot buy to let. In most instances you actually need to prove that you are occupying the flat as your primary residence - as if that was any of their business.

One might wonder why anyone would choose to buy a flat in this climate? The reason is because of how heavy-handed rent-control has distorted the rental market.

There is no real market for estate-agents in the rental sector, while this may sound like a blessing, it is actually a curse. In Sweden strict rent-controls are in place - with the best of intentions - to try to maintain affordable housing for all income levels in the city centres. They have succeeded inasmuch as keeping the rents exceptionally low.

The knock-on-effect is dramatic: as rental prices became uncompetitive already in the 1970's construction of new rental units came to an abrupt halt - and even today only a trickle of new rental units come onto the market.

As a consequence this has frozen the market altogether - those who have a first-hand contract for a ridiculously cheap city centre flat can never give it up as they are practically unobtainable and represent an enormous locked-in value. In the bigger cities this has created a massive black market in which second- and even third-hand rental contracts illegally are being traded with juicy mark-ups.

For the landlords of properties with regulated and low-performing rents, it also means that they generally can triple the property value by selling off the rental units and turning the property into "accommodation-rights" instead.

The long-term consequence of the regulated rental market in Sweden has thus had the following results:

1) The creation of a black market in which rental contracts are traded at high prices.

2) Ten-year long queues for those trying to obtain legitimate first hand rental contracts in city centers.

3) A strong incentive for property owners to sell their properties and make them into accommodation-right properties where market rates apply and only well-capitalized individuals can buy.

Effectively, this policy has killed off renting in Sweden, and current projections show that there will largely not be any rental market whatsoever within a decade. Chalk another one up for central planning.

Friends of the Swedish model would argue that you can find rental properties provided you do your homework - call around among landlords, ask friends and friends of friends. In my view, this is a broken system. As a potential customer, I should not have to face artificial scarcity and have to work to find the product I am seeking - I should be courted by providers.

As I do not want to enter the property market in Sweden right now (according to The Economist it is estimated to be the second-most overvalued one in the world, with a 30% correction to be expected) we wanted to find a first-hand rental unit. The only practical way we could do this without having to queue for years was to find the the most expensive high-end flat possible - still a very competitive rate compared with anything you would find in London - but a rent that would make the heavily taxed Swedes shy away.

Even at this we were still number three in a queue to view the flat, with no option whatsoever to come in with a better offer to close the deal. The rent is fixed. You have to queue like the rest of the comrades.

To add insult to injury, the queue system is generally not based on a come-first basis (we were the first to jump at our flat - but were quickly downgraded to third place) but on how long you have been renting before and how long you have been registered in the queue-system. This traps people in the queue-system, and as nobody dares risk lose their place even if they would be financially capable of owning a home, the queues keep growing for popular properties - now sporting decade-long queues full of people who really are not seriously looking to move.

In the UK - and particularly London, the market rules supreme and as a consequence you have infinite options in terms of location, price level and configuration of flats. Of course prices are extortionate - they always hover just at the threshold of what any sane individual can cope with. The difference compared with Sweden struck me the other day when an old friend got in touch asking "what we were going to do with our old rental flat in London" as a relative of hers was looking for something in London.

If you are a Swede it is hard to understand how this question does not make sense in the UK, as any rental unit immediately is put back on the market and rented out again by estate agents - and also since in order to find a flat all that is required is a phone call to an estate agent. However, when your whole mindset is rooted in a rent-controlled economy plagued by artificially created scarcity, your gut instinct is to jump at any nepotist opportunity when somebody seems to be ready to finally make a move.

The big downside to the London rental market - aside from the prohibitive cost - is the ruth- and uselessness of estate agents. As a rentee, there is little security in making sure you have secured a flat until you literally have the keys in your hand.
We have moved a few times within London, and each time has presented new nightmares.

The first time we had agreed the deal with the estate agent, paid our deposit fee and given notice at our previous address only to be notified ten days before our move-in date to let us know that the property owner had "changed her mind" (read: got a better offer). I asked the agent "But you told us we had a done deal?" -"Yes, but then the deal came apart. I'm sorry."

We went back to our previous landlord and explained our situation and asked if we could stay a few months longer, to which she agreed although "reviewing the situation I will have to put the rent up £30 per week" which is London-pro-speak for "Aha, you are between a rock and a hard place - I will take you for what I can then!"

The next time we moved we decided to use a relocation agent to handle the estate agents. A relocation agent will sniff out good opportunities before they hit the websites, which gives you a competitive edge in finding good deals and properties. We stressed the need to have the contracts signed well before moving in this time - something the estate agent reluctantly agreed to after demanding a 6-month up front payment to make sure we were serious.

As I got my appointment in their office and signed the contracts, the clerk then took them away and stowed them in a drawer. I can only assume the blank look on my face was what led her to ask me "Can I help you with anything else?"

"Well, can you get someone to countersign the contracts so I can have a copy please?"

"We will sign the contract on the day you move in, Sir."

"...uh, so I just handed over ten grand to you in advance for the privilege of one-sidedly signing a completely non-binding contract?"

"Don't worry, it is a done deal."

Curtain.

Sweden:

+ Nobody will try to con you out of your contract

+ Generally high quality properties where both plumbing and heating work

- Very few available rental properties due to rent control

- The humiliating queue-system

UK:

+ Loads of properties on the market

+ Opportinity to make deals and haggle

- Use- and ruthless estate agents

- The generally decrepit state of properties. Even modern refurbished ones tend to be held together by gaffa tape and old newspaper under the plaster.

Winner:

The UK wins, as most people can find a property that works for them fairly easily, and in the end this is the most important thing. I will happily deal with scoundrels if I do not have to suffer the impracticality and humiliation of having to queue.