The Swedish government is on the verge of collapse.
Prime Minister Stefan Löfven has been given an ultimatum: withdraw his plans to implement reforms to the laws governing the Swedish rental market or face a vote of no confidence on Monday.
But if the timing of this crisis may come as a surprise, the fact that it would occur was inevitable.
From day one, Die Linke made it clear that he could not keep the government alive if it decided to let market forces drive rental prices.
This is just the last row of Sweden’s current ‘red-green’ minority government, which was founded in January 2019.
The cabinet, made up of the Social Democrats and the Green Party, has only 116 seats out of the 349 in the Swedish Parliament, or around a third.
While keeping its official supporters, the Center Party and the Liberals happy, the government had to be careful not to wake up the Left Party.
Now Löfven seems to have lost his balance.
With the Left Party having lost confidence in the government, right-wing Swedish Democrats across the political spectrum took the opportunity to call for a vote of no confidence.
The other two opposition parties, the Moderate Liberal-Conservative Party and the Christian Democrats, have also announced their readiness to overthrow the government.
Politically weak government
Minority governments are the rule in Sweden, but this government has had an extremely difficult time, said Professor Ulf Bjereld of the University of Gothenburg.
“It is a politically very weak government because it depends on the support of the left and the right to function,” he said.
After months of fruitless negotiations since the parliamentary elections in September 2018, the Swedish Social Democrats and the Green Party finally found a way to form a government – that of Löfven¨s second – in January 2019.
The solution was a 16-page document, called Januariavtalet, meaning the January Accord. In the deal, the Center Party and the Liberals promised to refrain from voting against Löfven as prime minister.
However, this promise comes at a price. The Social Democrats have had to accept a long list of political initiatives that are not typical of a Labor Party, including a pledge to allow landlords to set the rents on their property.
“It’s a compromise they were forced to make. They had to go to great lengths to be able to secure the cabinet, ”Bjereld explained.
A new way to fix the rent
In the past, the amount of rent that the three million Swedish tenants had to pay was determined by collective bargaining.
Instead of direct negotiation between landlords and tenants, the Swedish tenant organization Hyresgästföreningen concludes agreements with landlords on behalf of all tenants. This makes it difficult for landlords to raise the rent without first negotiating with the tenant organization.
This, according to Martin Hofverberg, chief economist at Hyresgästföreningen, is one of the main reasons why rents in popular urban areas, like Stockholm, have not risen as fast as in other capitals.
“The Swedish model is unique,” said Hofverberg. “It sits somewhere between a market system and strict regulation. It is a flexible system which also takes quality parameters into consideration when setting the rent.
But if you ask the Swedish Property Federation, Fastighetsägarna, the current system is far from flexible enough.
“When collectively negotiated rents are far from market rents, you either wait several years to get an apartment or you turn to a growing black market. The limited reform on the table aims to make investment in new rental apartments more easily accessible where demand is high, ”said Martin Lindvall, director of policy.
He argues that this proposal would make Sweden a more attractive place to build new residential buildings, as will the political parties supporting the proposal.
“If rent setting was better suited to the market over time, our members’ willingness to invest would increase,” said Lindvall.
In his opinion, this problem has been bloated into something much bigger than it actually is.
“It will only affect very few people. The proposal would only mean that owners of apartments built after July 2022 would have the right to choose to bargain collectively or directly with the tenant.
The Finnish example
The rental housing market in neighboring Finland has been mentioned many times in the Swedish debate.
In the early 90s, as Finland was going through a huge economic crisis, the Finnish rental market went from a highly regulated market to a free market in just a few years.
“It was far too radical,” said Anne Viita, president of the Finnish tenant organization Vuokralaiset.
She explains that in Finland landlords can terminate rental contracts if tenants do not agree to a rent increase.
“The Swedish model has always been seen as an ideal,” she said, warning the Swedes to make an irreversible move they might later regret.
Tenants, the Left Party and others, who are against the new rental proposal, see Finland as an example of where Sweden could go.
“This would worsen the tenants’ bargaining position,” noted Martin Hovferberg, representative of Swedish tenants.
He explained that renting a house in a newly constructed building in Sweden is not cheap today either. Nonetheless, collective bargaining smooths out the differences between new and existing homes over 10 years or more.
“This new model would mean that the rent would start at a high level and continue to rise,” he argued.
Owner Martin Lindvall found the comparison to Finland miserable.
“It’s like comparing apples to bananas.”
“Free rents for new productions is already a controversial issue in Sweden. We have no preconditions to go further with this deregulation, ”said Lindvall.
What can Löfven do next?
For political scientist Ulf Bjereld, the moment of the crisis is not surprising but was not inevitable.
It was triggered by a report on new legislation for rent pricing in new homes that came out on June 4. The bill is now in consultation and the bill itself is not expected to be introduced until the fall.
“The Left Party does not want to wait that long, because the next general elections are scheduled for next year,” noted Bjereld.
“It is ideologically very important for Die Linke. It can mobilize their own voters, but some left-wing social democrats also support the left in this area. “
“The Left Party is afraid of being seen as too complacent,” he added. “It was basically a question of when not whether the party would say no.”
Now Löfven has three alternatives, according to Bjereld.
“The most likely scenario is that he uses the time until Monday to negotiate a deal that all parties can agree to,” he said.
The Prime Minister himself assured Friday at a press conference that “Of course, we are working to avoid a crisis”.
The second alternative is for the Swedish parliament, Riksdagen, to force him to resign. This would mean that Sweden would be ruled by an interim government – most likely led by Löfven.
“The less likely alternative is for Löfven, after seven unstable years as Prime Minister, to call for early elections,” Bjereld said.