lördag 24 februari 2007

Sweden 'needs to shake up jobs and housing'

"Sweden needs to deregulate the housing rental market and changes are needed to employment rules in order to stop the exclusion of immigrants and other groups, a new survey of the Swedish economy from the OECD has said.

"The report, issued every two years, praised Sweden's 'strong and steady' economic performance, saying that the country's economy had done better than most other European countries. The report said that the country's response to the economic crisis of the early 1990s had laid foundations for current successes.

"But the OECD reserved strong criticism for the housing market, calling for the abolition of rent controls.

"Heavy regulation of rent levels forces people who might have preferred to rent into buying property instead, particularly in Stockholm, the reports said. Rent controls also force people onto the black market, lead to the conversion of rental flats into tenant-owned apartments and lead to low construction levels of rental flats.

"Eight percent of the population of Stockholm is queuing for an apartment, with an average waiting time of 10 years, while well-connected people are able to jump the queue. This benefits insiders and people who are already privileged, the report argues.

" 'Our main concern over rent controls is that prices do not respond to demand and supply,' said Felix Hüfner, one of the report's authors. They could also have an effect on labour mobility, thereby having an impact on other areas of the economy," he said."

This is all very well, but as so often happens with economists, those at OECD are only looking at half the picture. Reform could go badly wrong, as happened in Britain in the 1950s when rent control was abolished by a Conservative government and the result was large scale eviction and the homelessness which continues to this day. Landlords exploited the situation and we had what is known as Rachmanism, named after one notorious landlord; another notorious and more recent case is the landlord Hoogstraten.

If rents are not allowed to rise to current market values, economic theory predicts that a secondary market will develop, legally or otherwise, which is exactly what can be observed and is what OECD is criticising. But if rentals are set by market conditions and no other measures are taken, then they will rise to artificially high levels as landlords will keep a lot of property empty and off the market whilst attempting to find tenants who will pay the extortionate rent.

The only way round this problem is to liberalise rents, and at the same time, to introduce a property tax based on the land value element of the rental value - such a tax to be based on current rental values and paid annually.

This is known as land value tax (LVT); potentially, it could raise very large amounts of revenue, thereby enabling other taxes, for example, on labour, to be cut or even abolished.

About land value taxation

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