Rental contracts led to reduced employment and lower labor income

The study is based on a housing lottery that was carried out in Stockholm between 2003 and 2013. The lottery would contribute to an increased social mix in that groups that were otherwise excluded due to long queues would be able to get a rental contract.

In total, there were 638 apartments that were provided via the housing lottery. To be accepted as a tenant, the participants in the lottery had to have a fixed income and a gross income of at least three years' rent. The study includes over 4,000 participants and was recently published in the prestigious Journal of Public Economics.

The researchers have followed the participants' wage development, education and situation on the labor market and investigated how the group that received a rental contract via the lottery fared in relation to those that did not.

– We wanted to study behavioral effects for individuals who receive a lease with so-called use-value system of rent setting, that is, a rent that is in most cases determined through annual negotiations between landlord and tenant association and not by the market, says Cecilia Enström Öst, researcher in Economics at IBF.

She has carried out the study together with Per Johansson, who is a Professor at the Department of Statistics. In their analyses, they found that participants who received a lease through the lottery reduced their income by 13 to 20 percent compared to those who did not receive a lease. The employment rate also decreased by 8 to 13 percent compared to those who did not receive a lease. The effect was greater for women than for men.

The effect can to some extent be explained by the fact that an apartment obtained with a use-value system of rent setting also tends to increase the probability of starting higher education. According to the researchers, this is because getting such an apartment in an attractive area can be equated with getting a capital increase (such as a lottery win) that makes it possible to reduce working hours and, for example, start studying.

– Our results show that there are behavioral effects of receiving housing with regulated rent. In Sweden, all individuals are entitled to a rental contract with use-value rent setting without any means test, and no distinction is made between new and existing tenants.The Swedish rent system can therefore, to some extent, be regarded as a general housing support, says Cecilia Enström Öst.