Standard & Poor's expects the outcome of the negotiations between the European Commission and the Swedish government over state aid for muncipal housing companies to cause major changes for the Swedish rental property market.
The European Commission is considering a complaint made against the Swedish government alleging that the country's municipal housing companies (MHCs) are receiving unlawful state aid. If the Commission were to conclude that Sweden's municipal housing system is incompatible with EU rules governing state aid, major changes may be in store for the country's 300 MHCs and for the Swedish rental property market as a whole.
The dispute's origins date back to May 2005 when the European Property Federation (EPF; comprising national federations for private property owners), filed a complaint with the Commission on behalf of the Swedish Property Federation (Fastighetsägarna), arguing that Swedish municipal housing companies receive unlawful state aid from their owner municipalities. It is claimed that state aid in 2002 amounted to Swedish krona (SEK) 11.5 billion (1.25 billion).
In addition, the EPF objects to the Swedish rent-setting system where MHCs effectively set the benchmark for all rents in the market. Under this system, private landlords are restricted to setting their rents within a range of five percentage points above or below those for equivalent municipal apartments.
The Commission has already held informal discussions earlier this year with the Swedish government, concerning the allegation of unlawful state aid for MHCs. The dialogue between the Commission and the Swedish government has taken a temporary pause following the general elections in September 2006. Standard & Poor's expects that the Swedish government will come up with changes to the current system that are bold enough to satisfy the Commission and prevent a formal investigation being launched. One likely result would be that rent-setting would have to become more marketbased.
Source: Standard & Poor's