Steve Lafleur: What we can learn from Sweden’s rent control disaster

Canadian renters are really feeling the pinch right now. Even cities like Calgary and Halifax that were relatively affordable a few short years ago have seen rents skyrocket over the past few years. Naturally, this has brought renewed interest in rent control. Unfortunately, rent control isn’t a panacea. In fact, if taken too far it can be disastrous.

Consider Sweden. Stockholm has some of the most rigid rent controls on earth. The system is so complicated that I had to reach out to a Swedish friend for an explanation. A Swedish friend who, I might add, I met because of rent control. Let’s call him Tomas.

I met Tomas as an intern in Washington, D.C. in 2009. We were both in the same program but placed at different organizations. We were two of the only non-Americans in the program, and I’m half Nordic, so we have some things in common. What I remember about him, above all, is his reason for being there: he couldn’t get an apartment in Stockholm. 

You see, Stockholm doesn’t have the kind of mushy rent controls that allow for a small annual increase and for landlords to rent out vacant units at market rate. No, sir. Stockholm has the real deal rent control that hardcore social democrats dream of. While long-term residents enjoy low rents, young Swedes often wait more than a decade for an apartment. Longer still in the most desirable parts of the country, like Stockholm. 

Tomas was on the wait list for an apartment in central Stockholm. He figured there was no point hanging around Sweden if he couldn’t live where the action was. So he saw an opportunity to get some American work experience and took it. 

This memory was in the back of my mind for years. Every time I’d hear a story about decades-long wait lists for apartments in Stockholm, I’d think of him. Then, one day in 2017, I realized he’d turned up in Vancouver. He was working there, my new head office was there, so we met up. I kept thinking: is he still on the wait list? He travelled across the world to work in Washington—not exactly a cheap city—and now he lived in legendarily unaffordable Vancouver. Sure enough, he was still waiting.

Fast forward to 2020. COVID times. Everyone’s shuffling about, figuring out what on earth they’re going to do in this brave new world. Some of us moved out of the city for some breathing room. Others moved into big cities because it was cheap (maybe just me?). Tomas moved back to Sweden. His timing was impeccable. 

Tomas managed to get an apartment after being waitlisted for 13-14 years. Normally it takes much longer, upwards of 40 years for the most desirable units. He’s paying about $1,350 CAD for a two-bedroom apartment—around the price of a one-bedroom apartment in Winnipeg or a two-bedroom apartment in Saskatoon. Very cheap by Toronto and Vancouver standards, though not completely out of line with Canada’s more balanced real estate markets.

What can we learn from Tomas’ experience? Is rent control an abject failure? It’s complicated.

Perhaps the most famous quote about rent control is from another Swede, Assar Lindbeck: 

“In many cases, rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”

There’s an important caveat in that otherwise bombastic statement: in many cases. The program design and market context are crucial. 

As I said, Sweden’s rent control laws are rigid, with increases being determined by collective bargaining. By contrast, Ontario’s rent control laws (which apply to units built before 2018) are more flexible and don’t cap the asking price of new leases. Not all rent control regimes are alike. 

Furthermore, the impact will vary by housing market. Sweden has a relatively modest population growth rate. Their population increased by approximately 18.4 percent between 2000 and 2022. By contrast, Canada’s population expanded by 30.7 percent during that period and shows no sign of slowing. Our population increased by 1.1 percent in the third quarter of 2023 alone. Rent control is likely to create much bigger unintended consequences in markets that need to accommodate rapid population inflows. It doesn’t take much to disincentivize construction. Modestly high-interest rates are doing that right now. Choking off future returns to real estate investment would have a much bigger impact. 

So where does that leave us? I think the starting point is to realize that rent control isn’t a shortcut to affordability. It can certainly help existing tenants. I personally benefit from rent control. Similar units to my own have been listed in my building at $500 more than I’m paying. But if we capped all rental increases at 3 percent, it’s hard to imagine that we’d get all the housing we need built. 

I think Strong Towns’ Daniel Herriges has a useful way to frame the issue. Rent control is useful as an anti-displacement measure, but not as an affordability issue. Relatively flexible rent controls can balance the needs of existing tenants with the need for growth. 

Getting the details right is crucial. After all, if you don’t get enough housing construction, you end up in a housing shortage. We’re already there in Canada. Even though rent control was removed for new units in Ontario, a thicket of regulations, taxes, and labour shortages makes it tough for us to ramp up housing construction. So we need to be extremely careful about dissuading real estate investment.

Frankly, the best way to balance the needs of tenants and developers is to have a rational housing market that allows for the supply of housing to keep up with the demand for housing. Fast-growing cities like Dallas, Houston, and even Edmonton have managed to keep rents in check by encouraging development. Of course, Toronto and Vancouver aren’t and shouldn’t sprawl out like Houston. But there’s plenty of room to build upwards within the geographic boundaries of Vancouver and Toronto—if we allow it. Tokyo has proven that it’s possible to build upwards to affordability. We can do it too.

The cost of housing isn’t increasing well beyond the rate of inflation because of some law of nature. It’s because of scarcity. If we can bring down the cost of providing new units and increase the rate of production, we can build our way out of the problem. In that kind of market environment, relatively flexible rent controls can be effective anti-displacement tools without unintentionally undermining affordability, let alone creating housing shortages. 

The goal shouldn’t be to slow the growth of $2500-plus rents. The goal should be to bring down the cost of rent in Canada’s least affordable cities. If we can structurally decrease the cost of providing housing in Canada, maintaining rent controls as anti-displacement measures becomes a lot easier. That’s the future we should strive for.

With rents where they are, it’s understandable that people are grasping for easy answers. But while rent control may have its place as an anti-displacement measure, it’s no panacea for affordability. If you don’t believe me, ask a Swede.