Working Paper Series, Department of Real Estate and Construction Management & Centre for Banking and Finance (cefin), Royal Institute of Technology
The effect of rent regulations and contract structure on renovation: A theoretical analysis of the Swedish system
Abstract: The standard view is that rent regulation leads to reduced
maintenance as the landlord will be able to find tenants at the regulated
rent even if the level of maintenance is low. In this article it is shown
that the rent regulation system in Sweden interacts with a contract
structure where the rent is allowed to increase only if the standard of the
apartment is raised compared to when the apartment was new. Ordinary
maintenance is included in the rent, and the rent is therefore not allowed
to increase when such maintenance is carried out. It is shown that when
there is a housing shortage this system creates economic incentives for
increasing the standard of the apartment even if this reduces total
welfare. The result can be that quality is increased more than in a market
system, and that it can increase gentrification compared to such a system.
Policy proposals are also presented.
Keywords: rent regulation; maintenance; renovation; Sweden; gentrification; (follow links to similar papers)
JEL-Codes: O18; (follow links to similar papers)
18 pages, October 27, 2014
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