Stockholm's Black Housing Market: A Billion SEK Industry

 We met in a coffee shop with franchise cosy furniture, surrounded by one time visitors. She was late, and I had been observing the businessmen, tourists, and shopping mothers, for about 40 minutes when she came in. Via friends I had heard that Mathilda (not her real name) had paid 300,000 Swedish Crowns (about $36,000) for a first-hand rental contract. In some smaller cities in Sweden you could almost buy an apartment for this amount, and in Stockholm any bank would welcome you with open arms with such a down payment.

So why would someone spend so much money just to get a rental contract?

Stockholm's black rental-housing market. Image by: Sascha Benes

Stockholm's black rental-housing market. Image by: Sascha Benes

Mathilda had been living in Stockholm a few years, going from one second-hand rental to another. She was not satisfied with this situation. On the private market rents tend to be a bit higher than when renting through the municipal housing queue, although there are rent-caps. The second-hand apartments are traded on EBay-like websites, and contracts are usually short term (many are available for only a month, half year or a year). Having a “second-hand” contract is therefore considered a rather insecure situation. Furthermore, the extreme housing demand makes it easy for owners to lay down many rules for the renters. And because Mathilda has a pet, she has had a hard time finding apartments. Even when she had a place, she would constantly worry about finding something new.

She tried to find an apartment through the municipal rental department (Bostadsförmedlingen), but the queues are very long. Often she would find herself at no. 216 out of 380 people who applied, although she already had years of queuing credit. The benefit of getting a first-hand contract is that you can live in the apartment as long as you like, and that you get the right to trade your “first-hand” contract for that of someone else’s. Having a first-hand contract puts you in a secure position, you are in the system. The main problem is getting in, competing with over 400,000 members, of which 62,000 are active searchers. The average waiting time is now 4.6 years, and even then one should not expect to live in a desired neighbourhood.

Many people want the benefits of a first-hand rental contract, but they don’t want to wait several years to get one. It’s also hard to get one if you don’t have a steady job. You need to have a job contract for more than a year, a rare luxury in the modern job market. That’s why the illegal sales of first-hand rental contracts is a booming business, with an annual turnover of at least 1.2 billion SEK. And because way too little apartments are constructed to keep up with the demographic growth of Sweden’s big cities, it is unlikely that this situation will get better (although there are sources saying that we are closing in on the needed production levels).

I asked Mathilda why she didn’t just buy an apartment. She told me that she had tried, but even with a good down payment her salary would not allow her to buy something in the size she wants.

Mathilda’s boss knew she was not happy with her housing situation. He was the one who initially introduced her to a black-market real estate agent. After the offer she doubted a lot, she knew it was not legal and it involved a lot of money. She had recently inherited some money and the rental contract would consume almost the entire amount. Buying a first-hand rental contract meant that she did not have to fulfil the regular requirements related to income and contract length. Instead she was able to move into a spacious apartment in one of the closest suburbs of Stockholm’s city centre. She was desperate to finally find a steady home, so she decided to go for it.

She went to the bank to take out the entire amount, and to her surprise no one at the bank wondered why she needed her entire savings in cash. Mathilda thinks that her mother was probably more nervous than she was herself. She described the agent as a “serious and super nice guy, I trusted him fully”. He showed her several apartments and she picked the one she liked the most.

She plans on one day selling the contract again. The fact that it is illegal doesn’t bother her much. “I’ve also paid a large amount for this place, so I want my money back” she says. “In a few years the mortgage prices will rise, and many people will have to sell their apartments. Then many people will want to buy a rental contract, and the apartment prices will be lower. That’s when I will buy my own place” she argues.

After talking to Mathilda I just couldn’t believe that this option exists in this scale in Sweden. Sweden is one of the countries with the lowest corruption levels in the world. Not only are people illegally dealing in these contracts, but they are also required to pay to a whole bunch of people. To landlords for instance, who accept cash to let people cut the municipal housing line. And of course to the people who lived in the apartments before and decided to sell. Maybe even to people at Stockholm’s Bostadsförmedling?

I decided to find out a bit more and called Bostadsförmedlingen, the organisation responsible for the housing queue. Guessing that they would not be amused that people are cutting their line, I thought it would be a good place to start. The spokesperson of the organisation, Jenny Burman, told me that questions related to the black market is not something her organisation occupies itself with. Instead she advised me to talk to the politicians in city hall. So I did. After a few emails I was able to schedule a meeting with Martin Hofverberg, advisor of the Stockholm left-wing party (Vänsterpartiet), one of the largest parties in city hall.

When I arrived at city hall I met a man who looked more like a banker or marketeer, than a typical person from the left-wing party. He was wearing a light grey suit with suspenders, and in the setting of the characteristic city hall the whole scene reminded me of Med Man. He confirmed that it is not the municipal housing organisation that is responsible for dealing with the black-market agents, but the legal system. He also assured me that for the employees of  Bostadsförmedlingen there is nothing to gain. After an apartment has been brokered by them, the apartment is removed from their system and the renter’s queue-time is set to zero. It is only when a renter of public housing wants to trade the apartment for another that Bostadsförmedlingen gets involved again. However, when a trade is made with a private object other forums are used. This makes it so hard to intervene in this black market.

When people purchase a first-hand rental contract the deal is not made with a public housing company, but with a private one. These private companies usualy let about half their stock go through the municipal queue, and the rest is distributed on other fora. This means that Bostadsförmedlingen is not able to screen a large share of the city’s rental stock and the possible accompanied black transactions. In this system there are two ways a tenant can become involved with the black market. A person can buy a first-hand rental contract from a private landlord, usualy with the help of a black-market agent (like in Mathilda’s case); the other option is that money is paid to by a person for a desired trade of apartments.  

Hofverberg says that if we would take away the negotiated rents and relied solely on market prices, there would be no queue. But then the housing shortage would manifest itself in other ways. People with money would always find housing, people without wouldn´t. However, he is not in favour of market rents, because it would cause a whole array of other problems (like a lack of affordable housing). He sees the housing stock as the main problem, and as the main solution to the problem. Stockholm should build more so that the waiting times for the municipal housing queues will get shorter. I guess that makes sense, if you have to wait 2 years instead of five, you are probably less likely to spend your life savings on shady rental contract deals.

The current housing market situation and how it functions, increases the inequality on the rental housing market. People who can afford it are able to cut in line. Even though this is illegal, and the punishment of getting caught selling can be up to two years of imprisonment, the black market for first-hand rental contracts is booming. Directly trying to tackle the sale of these black market transactions would probably not be very fruitful, considering that it is a result and not a cause of the current situation. The only sustainable solution is to adress the cause, Stockholm’s lack of housing.

Written by Sascha Benes. Follow him on Twitter, Linkedin and .