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Effects of the utility value system on income

When there is a major shortage of housing, the design of the national system for rent setting, called the utility value system, means a reduction in income from work. This is shown in an audit by the Swedish National Audit Office.

Multi-family house, facade.


Audit background

One of the Riksdag’s housing policy objectives is a housing market that works well in the long term and in which consumers are supplied with a range of housing that meets their needs. Several works in the legislative history have put forward that a policy favouring work and growth depends on an efficient housing market and an efficient rental market.

One of the housing policy instruments used by the State is the much-debated system for rent-setting, called the utility value system. The idea is to prevent drastic rent hikes at times of housing shortages that force tenants with limited financial resources to move. The purpose is to provide existing tenants with security of tenure that is effective even in times of housing shortages, thus preventing segregation.

The security of tenure is created in that the rent is not only determined by the number of people prepared to pay, and thus does not soar when there is a housing shortage. In economic terms this is sometimes described as the individuals' values not being fully capitalised in the rent level, and that the utility value rent may thus be lower than a potential market rent in a shortage market. The fact that we do not have market rents on housing is, however, often criticised, for example because it can inhibit housing construction and create poor mobility in the housing market. [...]

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Updated: 16 May 2018

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