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Measures to Increase the Renting Out of Rooms in Private Residences (2017:11)

The Swedish Agency for Public Management (Statskontoret) has analysed, on behalf of the Swedish Government, how the renting out of rooms in private residences functions and has developed proposals for measures to increase the renting out of rooms in private residences. A “private residence” refers to owner-occupied housing, including detached houses, multi-family dwellings, condominiums, and cooperative apartments. Thus, subletting of or in rented dwellings with tenancy rights is not encompassed within the Statskontoret’s mandate here.

Reluctance and uncertainty present barriers to renting out

Statskontoret finds that reluctance and uncertainty are the primary obstacles for the renting out of rooms in private residences. In the survey of citizens conducted via SIFO for us, 74 percent of those who have an extra bedroom responded that they could not imagine themselves renting out a part of their home. The primary reason why people do not rent out a part of their residence is that they simply do not want additional people in their home.

When people do rent out a part of their home, the most common reasons why is that they want to help someone to have a place to live, to cover their expenses, or to obtain some extra income. Our survey also shows that nearly 9 out of 10 who rent out a part of their home have positive experiences with this. The willingness to rent out is greatest among young people, and least among the aged. At the same time, older people have significantly larger homes than young people tend to have. In other words, the potential for renting out rooms in private residences is the greatest where the desire is the least. In our survey of citizens’ opinions, 51 percent of the owners of a cooperative apartment, condominium (ägarlägenhet), or single-family home responded that they have one or more bedrooms more than they need. We therefore conclude that there is a potential to increase the renting out of a part of the residence.

Upon renting, both the resident landlord and the tenant resident will need to familiarise themselves with the extensive regulations, plus there are also a number of uncertainties relating to how the rules and regulations are to be applied. For example, it is not entirely clear how much rent the landlord may charge. The information about which laws and regulations are applicable is also confusing, inadequate and inconsistent. Our survey also shows that the knowledge about what applies when renting out your residence is at a very low level. It is our assessment that overall this creates an uncertainty that contributes to the hesitation or reluctance to rent out a part of one’s property.

In order to make people want to rent out, requires both a cultural change in terms of attitudes vis-à-vis renting out a part of one’s own residence, as well as clearer and more easily accessible information in terms of the rules and what applies when renting out. Therefore, Statskontoret proposes an information awareness campaign combined with an improved government-owned and operated website that has information concerning the renting out of rooms in a private residence. The aim is to contribute to a cultural change by raising awareness of the issue and to reduce the uncertainty surrounding the renting out of rooms in a private residence, by means of easily accessible information about what is applicable, along with providing guidelines and good examples for best practices.

It is often profitable to rent out, but the amount of rent that can be charged is unclear

Statskontoret assesses that it is often profitable to rent out a part of one’s private residence. Those who rent out a part of their home can cover their expenses. In addition, the tax rules relating to for renting out a part one’s home are relatively favourable. Therefore, it is our assessment that reduced taxes by providing increased tax incentives would not necessarily increase the willingness to rent out. Therefore, we propose that the currently in place favourable tax rules be retained.

In some cases however the cost-based rent that the landlord may charge may be too low, for instance if the market value is low. Statskontoret therefore agrees with the investigation Strengthened Position for the Tenants’ proposal to introduce a possibility for the parties to determine the rent between themselves based on the utility value principle.

Another problem we have identified is that the amount of rent the landlord may charge is unclear. When renting out rooms in a private residence, the resident landlord may charge a cost-based rent, which means that the landlord receives payment for both operating costs and the cost of capital. The cost of capital is calculated as a reasonable return on the market value of the housing, but it is currently unclear how the interest rate is to be calculated. At the same time, this is of great significance concerning the maximum allowable rent. Therefore, the Swedish Government should clarify what a reasonable interest rate on capital cost is.

Our calculation example also shows that a pensioner who is renting out a part of his or her residence risks losing a major portion of their housing allowance if he or she has a resident tenant living with them. This means, in other words, that the profit from renting out may be very minimal. Since the potential for renting out is the highest among the aged, the Government should ensure that the Swedish Pensions Agency takes this into account during its planned review of the housing supplement regulations.

The tenant’s position is weak and there is a lack of solutions securing their position

The tenant has a weak position in the subletting market and fraud or other abuse is all too common. The changes of the rules and regulations that have occurred for the purpose of increasing the renting out of rooms in private residences have further weakened the tenants’ position. The rental agreement/lease is more insecure and in reality the tenants have little possibility to request a reduced rent. Financially weak groups are assessed to be over-represented among those renting in private residences, and thus it may be difficult for many of them to save up for a down payment/equity contribution to enter into the regular housing market. In other words, there is an imminent risk of a locking out effect. For these individuals, their life is characterised by short, uncertain and expensive rental contracts.

Today, there are services that reduce the financial insecurity that tenants and landlords may experience in connection with the rental of rooms in private residences. But the number of actors involved in this field is relatively few and the services are expensive. In practice, the financially weak households do not have access to these solutions. More participants involved in this field would mean increased competition and thus most likely lower the costs. Therefore, in order to increase the use of brokering/mediation services, the Swedish Government should give Boverket - The National Board of Housing, Building and Planning - and the Swedish Consumer Agency the task of providing comprehensive information about the brokering/mediation services and an opportunity to compare companies’ prices and terms.

It is common for the landlord to require a security deposit from the tenant in order to ensure the fulfilment of the obligations, for instance in the event of unpaid rent and/or damage to the apartment the costs will be covered. Both the landlord and the tenant have an interest in seeing that this can be done securely. However, in Sweden there is no formalised system for security deposit payments with a resident landlord renting out a room, unlike several other countries. Therefore, Statskontoret proposes that a system of security deposits be introduced. However, there are a number of aspects that need to be investigated further, such as under what conditions a landlord may be able to use the security deposit. It is also important that a system for security deposits includes solutions for those tenants who are not in a position to pay a security deposit.

Some financially weak households may be entitled to financial support for their housing, but today the support depends on the type of housing. Young people who are resident tenants (inneboende) living in accommodations with a resident landlord, for instance, do not have a right to a housing allowance. This means that a student living in a student housing can obtain a housing allowance, but that a student who is living in private accommodations where they are renting a room as a resident tenant cannot receive this. Therefore, Statskontoret is of the view that the Swedish Government in the forthcoming review of the rules for housing subsidies rules should take this group of young resident tenants into account.

Adaptation and construction of new housing can increase the supply

If the Swedish Government wants to see an increase in renting out private residences, long-term measures are also required. Statskontoret is of the view that the Swedish Government can achieve this by stimulating the adaptation and encouraging additions within the existing housing stock, plus also stimulating the construction of new housing with rental possibilities.

In the situation where only simple measures are required in order to adapt the accommodations for renting out, the rental income can cover the investment costs relatively quickly. But efforts, such as the planning and construction for instance, of a part to rent, often entails a larger investment. At the same time, the maximum allowable rent for renting a separate part may be relatively low, in some cases. As a result, this means that it takes a long time before the rental income covers the investment cost. It is our assessment that, in some cases, the rent could be higher if the landlord could instead charge the utility value rent for the part being rented out. In turn, this means that more landlords will need to pay taxes on their rental income. Therefore, in order to stimulate the adaptation of the residence for renting out, Statskontoret proposes that rentals under the Act on Resident Landlord Letting (Lagen om uthyrning av egen bostad) be exempt from taxes for ten years if one constructs an addition for rental purposes. This makes things easier for the party renting out the premises and also results in a certain financial incentive. According to Statskontoret, the proposal is a way for the Swedish Government to stimulate and encourage the construction of additions for rental purposes. In this way, the existing stock can be better utilised, while the number of rental opportunities increases.

Statskontoret is also of the view that the Swedish Government should review the Planning and Building Act (PBL), the Planning and Building Regulation (PBF) and the National Board of Housing, Building and Planning’s Building Regulations (BBR) in order to simplify the adaptation of private residences for renting out rooms and to stimulate new construction with separate parts for rental purposes. Easily accessible information and guidance would also make it easier for those who want to adapt their homes for renting out. Therefore, Statskontoret proposes that the National Board of Housing, Building and Planning develop guidance with both legal guidance and concrete practical advice on how one might adapt their home for renting out.

In order to increase the flexibility of the housing market over the long term, Statskontoret proposes that the Swedish Government give the National Board of Housing, Building and Planning the mandate to develop and disseminate information to the municipalities concerning good examples on how they can stimulate new construction with separate parts for rental purposes, or alternatively new construction that is prepared for separate parts for rental purposes.

There are no statistics available concerning the renting out of rooms in private residences

Currently, there are no sufficiently adequate statistics concerning the market for rentals in private residences. Therefore, it is not only difficult to monitor and follow-up on the Swedish Government’s efforts, but it is also difficult for Government to assess what new measures may be needed. Therefore, it is Statskontoret’s assessment that the National Board of Housing, Building and Planning should be tasked with monitoring the developments in this market. The National Board of Housing, Building and Planning should be given this task despite the difficulties associated with producing statistics on the market for rentals in private residences. A part of the assignment should be to conduct a sample survey in order to estimate the extent of the renting out of private residences, plus to regularly conduct more in-depth studies in the field.