Renovations as an investment strategy: circumscribing the right to housing in Sweden

Abstract

There is an emergent field of writings on financialized landlords’ undertaking of apartment renovations as an investment strategy and its effect on housing inequalities. Seldom do these studies contextualize these tendencies within countries’ specific housing policy traditions. Therefore, through a qualitative case study in a neighbourhood in Sweden, this paper aims to uncover how private landlords undertake renovations as an investment strategy and its effect on tenants and, in turn, on the hybrid character of a universal housing system. It finds that renovations enable landlords to extract value from the built environment while tenants experience rising rents, a lack of information, poor property maintenance, and apprehension. Hence, I argue that renovations represent an investment strategy that serves to undermine the traditional social right to housing within a universal housing policy context. The paper thus furthers knowledge on how the situatedness of financialization tendencies entails their translation through and transformation of housing systems.

Keywords:

• Renovations
• investment strategy
• financialization
• right to housing
• private rental housing
• Sweden

Introduction

In the research field concerned with the financialization of rental housing, scholars have highlighted the importance of investment strategies in the establishment and operation of ‘financialized landlords’ – an umbrella term for landlords such as ‘real estate investment trusts (REITs), private equity funds, financial asset management firms, and other investment vehicles’ (August & Walks, 2018 p. 124). Such landlords have been linked to various housing and urban injustices (Beswick et al., 2016; García-Lamarca, 2020). However, few studies engage specifically with apartment renovations as part of an investment strategy. As an exception, August and Walks (2018, p. 132, see also August, 2020) identify renovations as part of a ‘gentrification-by-upgrading strategy’ implemented by financialized landlords in Toronto, Canada. The present paper focuses on a smaller neighbourhood to uncover how renovations are carried out and how they affect tenants. Additionally, the paper understands such investment strategies as indicative of how financialization processes influence rental housing in the Swedish context. This context serves as a unique legal setting insofar as it provides a relatively robust security of tenure (for a discussion on tenure security, see Hulse & Milligan, 2014). Rental contracts are normally unlimited in length and the rent negotiation system aims to retain low rent level rises so that tenants can remain in their homes (Bengtsson, 2013). This tenure security is central to Sweden’s universal housing policy, a policy approach in which the state regulates the market to provide the general population with affordable housing (Bengtsson, 2001).

The paper connects to previous studies on renovations in Sweden within the housing and urban studies literature. Whereas scholars have illustrated how renovations produce displacement pressure (Baeten et al., 2016; Polanska & Richard, 2019; Pull & Richard, 2019), I suggest that there is a need for dialogue with the scholarship concerned with the financialization of rental housing to understand why these renovations take place, how they are conducted on the ground, and what their political effects are on Sweden’s housing system. Accordingly, by building on these two bodies of literature, the paper contributes knowledge regarding renovations of private rental housing as an investment strategy and the relation of this strategy to current political-economic conditions and particularly Sweden’s tenure legislation.

The paper argues that private rental landlords’ use of renovations as an investment strategy undermines the traditional social right to housing within a universal housing policy context. Treating the local scale as an important empirical departure point for tracing changes in national housing systems (author; see also Hoekstra, 2020), the paper develops this argument through a spatially grounded case study. In Sweden, the decentralization of national state power via the establishment of municipalities and their political responsibilities and power (Ekström Von Essen, 2003) has long been integral to housing policy. During the 1940s, the social right to housing was institutionalized via the establishment of municipally owned public housing as a counterspeculative force on the housing market (Bengtsson, 2013). In short, social equity became a fundament of the universal housing policy, protected inter alia by the abovementioned legal framework guarding tenants’ right to occupancy. This policy became the background to daily residential life, as many households experienced an improvement in living standards compared to previous generations. Ultimately, it is by considering such everyday experiences (including those linked to renovations) that we can identify the mechanisms and limitations of the Swedish housing policy today.

Over the last decade, renovations of rental apartments have physically and socioeconomically transformed the private rental housing stock in Sweden (e.g. Baeten et al., 2016) and, in 2017, a governmental investigation (SOU 2017:33. Stärkt ställning för hyresgästerna 2017:33) proposed strengthening the residential legal framework for tenants who face renovations. Six of the largest private landlords in Sweden undertake such renovations as a key accumulation strategy (Elmgren et al., 2017). These widely criticized ‘luxury renovations’ (Weckström, 2018), comprise various alterations that increase an apartment’s standard of living, ranging from the installation of a dishwasher to a full upgrade. As Sweden’s rental legislation allows for rents to be lifted when living standards are improved, these renovations lead to often substantial rent increases, not uncommonly more than 40 per cent (Elmgren et al., 2017).

While increased revenues from higher rents are a key motivation for landlords to carry out renovations, these are subordinate to how companies’ financial strength is bolstered by renovations, as the paper will demonstrate. Private landlords primarily undertake renovations as a ‘finance-led investment strategy’ (Botzem & Dobusch, 2017) to increase asset values. Crucially, renovations that lead to higher rents increase the market value of a property. As long as the value increment is not matched or exceeded by an increased burden of liabilities, especially debts, typically two financial implications follow. First, it makes it possible for a company to take up more loans as it becomes more creditworthy, which allows additional investments. Second, it leads to an increase in the market value of the company and thus increases potential future returns from sales of shares.

The paper builds on a case study of how a private rental landlord has renovated its housing in the neighbourhood of Herrgården in Malmö, Sweden’s third largest city by population. The analysis draws on published statistics, grey literature, notes and transcripts taken from focus group meetings, interviews, and observations. The paper presents a detailed analysis of the implementation of renovations in a highly racialized and socioeconomically disadvantaged area, with the aim of uncovering how private landlords undertake renovations as part of an investment strategy and how this management affects tenants and theSwedish housing system.

The paper proceeds through five sections. First, the paper reviews the literature on the financialization of rental housing. Then a background to renovations and the private rental sector in Sweden is provided. Next, the paper presents the research design and methods used for the case study. An analytical section then draws on results from the case study and is divided into three parts (i) explaining the trajectory of the rental property owner Victoria Park, (ii) analysing this actor’s use of renovations, and (iii) exploring the effect of renovations. This analytical section is followed by a conclusion containing the paper’s key findings.

Previous research on financialization of rental housing and renovations

The larger body of scholarship on financialization consists of three traditions (French et al., 2011; Van der Zwan, 2014). These traditions highlight the transition from productive capitalist accumulation to a deepened dependence on financial profits and markets within economies, particularly in an Anglo-American context (Krippner, 2005), intraorganizational changes in the form of, for instance, corporate management centring on short-term shareholder values (Froud et al., 2000), and the embodied experience of financialization as involving the consumption of financial services and debt that moulds ‘entrepreneurial investor subjects’ (Hall, 2012, p. 405; see also Karaagac, 2020). However, in the following sections, I focus on the literature on rental housing and financialization. Below, I clarify how financialization is conceptualized in this field. Three strands in the literature have been particularly important for the analysis in the paper. These strands include how financial landlords use investment strategies, the effect of this management on households and communities, and how this tendency in turn signals political-economic shifts. The section concludes with a discussion of recent studies on renovations in Sweden, highlighting how the above-listed perspectives can further the knowledge from these studies.

Most work on the financialization of rental housing refers to the work of Aalbers (2016, p. 2) and his definition which follows: ‘the increasing dominance of financial actors, markets, practices, measurements and narratives, at various scales, resulting in a structural transformation of economies, firms (including financial institutions), states and households’. This body of literature stresses how financial markets and activities under neoliberalism have come to mediate value between financial circuits and built environments and how rental housing after the global financial crisis of 2007-2008 has become central to this tendency (García-Lamarca, 2020). An expression of the tendency to bridge the contradiction between tangible and intangible capital is financial landlords’ use of various forms of investment strategies that affect rental housing. This trend signals a shift, according to Wijburg et al. (2018, p. 1104), from the first stage of the financialization of rental housing indicating the ‘buying low and selling high’ activities deployed by financial actors, to a second stage (‘Financialization 2.0′) in which financial landlords increasingly use investment strategies to tie real estate into the financial realm.

Such strategies include, for instance, the strategic acquisition of distressed properties (Beswick et al., 2016; García-Lamarca, 2020), renovation (August & Walks, 2018), and demolition (Crosby, 2020), undertaken by landlords to increase rent revenues as a base for debt financing and shareholder value (e.g. Uffer, 2011, p. 112). Botzem & Dobusch (2017, p. 39) report that these strategies serve as a form of ‘value creation by revaluating property and legitimizing the provision of additional credit’. In particular, August & Walks (2018, p. 132) describe renovations as a gentrifying-by-upgrading strategy, as they are ‘repositioning buildings and transforming their tenant base, sometimes with a goal to flip for short-term capital gains’. The authors refer to the management of, among others, Swedish real estate company Akelius, which has also in the Swedish context introduced such measures.

This paper then operationalizes renovations as a type of investment strategy expressing the financialization of rental housing tendencies, as these mediate value relations among tenants, built environments, and financial circuits. Accordingly, real estate companies use renovations as an investment strategy (Botzem & Dobusch, 2017) not only to reduce maintenance costs and increase rental incomes but also to increase asset values – that is the financial values of both the housing stock and the companies themselves (Fields, 2017; Fields & Uffer, 2016; Waldron, 2018; Wijburg et al., 2018).

Furthermore, the literature on the financialization of rental housing offers an analytic lens through which to understand how such investment strategies affect households and communities and deepen social inequality, particularly in a Western context (Beswick et al., 2016) and often alongside race, class, and gender lines (Crosby, 2020). Such effects include how tenants face rising costs of living, threats of evictions, harassment from landlords, higher turnover rates, and poor maintenance (Fields, 2015, 2017; Fields & Uffer, 2016). This includes how tenants as unwilling subjects are ‘almost incidental to a process taking place without their knowledge or consent’ (Fields, 2017, p. 592). By centering on the experiences of tenants and households, these studies report responses to and resistance against the treatment of homes as financial assets (Fields, 2015, 2017; Fields & Uffer, 2016; García-Lamarca & Kaika, 2016; Janoschka et al., 2020).

Last, the conceptual framework offered by this research regards financial landlords’ management and its social consequences as taking place within, and influencing, political-economic, legal, and geographical contexts (French et al., 2011). Two examples, both from Ireland, cover the shift of social housing policy towards subsidizing the private rental sector (Byrne & Norris, 2019) and the cultivation of REITs through state induced financial instruments and policy (Waldron, 2018). This trend reminds us that ‘[all] financial processes are constituted in and through differentiated, overlapping, often competing, and frequently contradictory geographies of legal space’ (Knuth & Potts, 2016, p. 458), a perspective salient in several studies aside from the ones mentioned (e.g. Bernt et al., 2017; García-Lamarca, 2020). Investment strategies, in particular, are understood to be operationalized in specific housing markets and legal contexts (August, 2020), which includes how such strategies become entangled with state structures. As an example, Soederberg (2018, p. 118) reports that, in Germany, ‘institutional investors are directly subsidized through the federal welfare benefit system’ in that tenants’ rent payments depend on welfare benefits. Against this backdrop, I discuss the role of present tenure legislation in the implementation of renovations and how renovations affect the prospect of achieving the ambitions of this legislation.

The paper brings the abovementioned three perspectives on how renovating rental housing is an investment strategy, how it affects tenants, and how it feeds into a political-economic change into conversation with recent work of the housing and urban studies literature. Here, several studies argue that combined structural and luxury renovations in Sweden lead to direct and indirect forms of displacement (Baeten et al., 2016). Drawing on the work of Peter Marcuse, Baeten et al. (2016, p. 632) describe indirect displacement as a ‘“displacement pressure” which refers not only to actual displacement but also to the anxieties, uncertainties, insecurities and temporalities that arise from possible displacement due to significant rent increases after renovation and from the course of events preceding the actual rent increase’. For instance, Polanska & Richard (2019) show that tenants react with emotions of shock, worry, and powerlessness when landlords withhold information. The authors describe how a ‘fracture in the belief of a fair and democratic Swedish society became visible as the vast majority could not combine their previous beliefs and perception with the current situation, lacking in influence and leverage as tenants’ (Polanska & Richard, 2019, p. 149). Additionally, Pull & Richard (2019) propose a phenomenological perspective of place to understand the emotions aroused through displacement pressures due to renovations.

The abovementioned contributions provide important knowledge on how landlords use renovations as a profit strategy, which can have profound effects on tenants regardless of whether they are forced to move or not; however, these works do not fully explain why these renovations unfold. Additionally, Polanska & Richard (2019) interpret emotional responses to renovations as resonating with a traditional trust in the Swedish model, as renovations uproot the rationales of the housing policy. Yet, the authors do not explicitly discuss what specific elements of the universal housing policy that shape renovations. Hence, there is more knowledge to gain on the corporative manoeuvrings linked to these renovations, and we must reflect on how the effects of these manoeuvrings influence the system for housing provision in Sweden. On this last issue, several studies have highlighted the shift in Sweden’s housing policy, with decreased housing subsidies, privatization, and the marketization of the public housing sector (Hedin et al., 2012; Holmqvist & Magnusson Turner, 2014). Sweden’s housing system has turned into a ‘monstrous hybridity’ with combined regulatory and deregulatory features, according to Christophers (2013). Following this notion of a universal housing system struggling with tensions between market and regulatory powers and the abovementioned studies, the paper sets out to explore how renovations as an investment strategy are unfolding in Sweden’s historical welfare setting.

Renovations and rental housing in Sweden

This section provides a background on the recent trend in the renovation of rental housing in Sweden. Following a brief introduction to renovations, I provide a short description of the housing market in Malmö and in Sweden. Next, I offer some clarifications on the characteristics of private rental housing. Thereafter, I also present a key shift in the public housing regulation that has influenced prospects of the renovation of private rental housing.

A large part of the rental housing stock in Sweden, particularly properties constructed by the welfare state during the 1960s and 1970s, has become a focus following the ambitions of the European Union (directive 2012/27/EU) and Swedish government to reduce the housing sector’s energy consumption through refurbishment (Johansson et al., 2017). The motivation for such structural renovations, including pipe replacement and energy retrofitting, has become interlinked to incentives for small-scale (‘luxury’) renovations that change apartment standards and rent levels. These types of renovations cannot always be separated, as landlords combine structural changes with standard increasing measures.

No study specifically provides an overview of standard increasing renovations. A government investigation has highlighted reports on combined structural and ‘luxury’ renovations and expected an increase in these renovations to affect approximately 50 000 to 60 000 apartments per year (prognosis for 2011–2015) with a peak in renovation costs by 2020 (SOU 2017:33. Stärkt ställning för hyresgästerna 2017:33, p. 145–146). Additionally, the Swedish Union of Tenants (SUT) recognizes the link between renovations and a shortage of affordable housing (Elmgren et al., 2017). For example, a report on renovations in the city of Gothenburg estimates that rising rent levels may force every third tenant to move (Vostra Konsulter, 2017). Also, the National Board of Housing, Building and Planning (Boverket [National Board of Housing, Building and Planning] 2014) indicates that tenants facing renovations are 1.8 times more likely to move than other tenants. Moreover, the SUT (Elmgren et al., 2017) maintains that cosmetic renovations and companies’ use of these renovations to strengthen their market position postpone actual needed renovations of an ageing housing stock, while the economic means to perform these needed renovations are jeopardized through the financial indebtedness of these actors.

Turning to Sweden’s rental sector, the scene for renovations, we find two main tenure types: public and private rental housing. The municipally owned public housing stock accounted for, in 2018, 16.7 per cent in Sweden and 13.9 per cent in Malmö (Figure 1). Meanwhile, the private rental housing sector accounted for 22.6 per cent in Malmö in 2018, reflecting an increase of 4.1 percentage points relative to 2013 levels. The sector also expanded on a national level from 10.7 per cent in 2013 to 12.2 per cent in 2018. Figure 1 illustrates the development of tenure types in Sweden and Malmö as a reference point.

Figure 1. Tenure types in Sweden and Malmö. Cooperatives refer to market-based tenant cooperatives. The time period is selected to correspond with the time period discussed in the analysis. Data source: Statistics Sweden.

The public housing sector has since the financial deregulation of the Swedish economy in the 1980s and early 1990s (Belfrage & Kallifatides, 2018) engaged with financial markets (for instance, taking loans, issuing bonds, and undergoing credit ratings) (Gustafsson, 2021), albeit not been dominated by financial logics or activities. However, a reform of public housing legislation in 2011 (Allbolagen, described below) added financial stress to public housing (Grander, 2017; 2018a) with the consequence of an increased emphasis on yield calculations in housing construction (Westerdahl, 2020).

With respect to private rental housing, historically in Sweden, it is more common to find institutional private rental owners, among which publicly listed companies and private companies dominate, than individuals who own rental properties as is the case in other countries, such as England, France, and Spain (Crook & Kemp, 2014; Hulse et al., 2020). This arrangement poses a unique opportunity for various actors to establish themselves within Sweden’s private rental sector. Moreover, high property values, stable rent revenues due to a severe housing crisis throughout the country (Boverket [National Board of Housing, Building and Planning], 2018), and low interest rates make residential property in Sweden a lucrative investment. For instance, since 2017, foreign residential investors have been net buyers in Sweden’s property market (Savills, 2019). This tendency mirrors an observable renewed interest in rental housing investments following the 2007/2008 global financial crisis, an interest that exemplifies how private rental housing is ‘calibrated to the fluidity and “flexibility” of the neoliberal and post crisis eras’ (Forrest & Hirayama, 2015, p. 239; see also Byrne, 2020; Kemp, 2015).

Grander & Westerdahl (2019) highlight the entry of more financialized housing actors using specific calculative measures that assetize the built environment. These actors often take the form of listed real estate companies with diversified owner structures that include pension funds and private equity investors. These actors are also increasingly dependent on corporate bonds rather than bank loans (Olsén & Björkvald, 2019).

Consequently, the paper engages closely with the particular investment strategy used by such real estate companies to enhance their asset values. Thus, renovations as an investment strategy exemplify how financialization in Sweden may increasingly ensnare private tenants, a phenomenon found in other Western contexts (cf. Fields, 2017; Kitzmann, 2017). This situation is especially alarming since the rental sector currently houses low-income households to a far greater extent than the homeownership and cooperative housing sectors (Borg, 2019). This trend is especially present within the public housing sector, although in Malmö the majority of low-income households live in private rental housing (Salonen, 2015).

Last, in 2011, the reform of public housing legislation affected the overall rental market, including prospects for renovations. The public housing sector was a non-profit sector prior to this law reform, and the negotiated rent levels within this sector were normative for rent levels within the private rental sector. This normative function ensured that when rent levels in the private rental housing sector were evaluated, they were compared and adjusted to the rent levels in the public housing sector. The upheaval of public housing’s non-profit principle and its normative function for rent levels by the reform of 2011 enabled an overall increase in rents. Two trends followed: public housing bodies became more inclined to sell housing to finance housing production and renovations (Grander, 2018a) and rent-increasing measures within the overall rental sector became more prevalent. However, there is still remaining tenure legislation that is designed to protect tenants. I present this legislation and its historical origins below to highlight the setting for the implementation of renovations. Particularly, I emphasize how the principle of housing as a social right was fundamental in the formation of Sweden’s housing system.

The social right to housing and tenure legislation in Sweden

The Swedish constitution includes the right to housing through the phrase ‘…the public shall secure the right to work, housing and education…’ (Ministry of Justice. SFS 1974:152, 1974, author’s translation). Additionally, a cabinet proposal stated, in 1974, that housing is a social right and should not be regarded as a commodity (Cabinet Proposal 1974:150, n.d., pp. 343–344). The social right to housing was embedded within the wider social democratic welfare project, in which the state established municipalities to provide for social welfare, including the social right to housing, in addition to other services (Ekström Von Essen, 2003).

Thus, the right to housing in the Swedish welfare state context became a general claim, with the aim of providing the general population with affordable and decent housing rather than guaranteeing individuals’ legislative rights to be housed (Bengtsson, 2001; Fitzpatrick et al., 2014). Bengtsson (2001) contends that this conception of a social right to housing is embedded in an understanding that housing is placed on the market, as the wobbly pillar under the welfare state (Torgersen, 1987). In essence, the state alters the market to compensate for the power imbalances between the market actors which is different from selective housing regimes where the state secures a housing provision within a protected part of the market for specific marginalized households (Bengtsson, 2001).

However, several reforms have undermined the universal character of Sweden’s housing policy (Holmqvist & Magnusson Turner, 2014). These reforms include lessened subsidies for housing construction, tenure conversions of rentals into homeownership, the abolition of the property tax, and reduced housing allowances (Christophers, 2013; Turner & Whitehead, 2002). Yet, tenure legislation remains to smooth power imbalances in the housing market and secure the position of tenants (Bengtsson, 2001). Here, we find tenure legislation aiming to control rent increments and secure the right to occupancy. Tenants’ right to occupancy (besittningsskydd) was regulated in 1956, while the use-value rent negotiation system replaced rent regulations in 1968 (Bengtsson, 2013). Under this rent system, housing market stakeholders (Public Housing Sweden, The Swedish Property Federation, and the SUT) negotiate rent levels locally and set these levels in accordance with the ‘use-value’ of the apartment. Therefore, an apartment’s rent should not exceed the rents for similar apartments in the same area. One of the key purposes of this system is to protect tenants from steep rent increases, thus strengthening tenants’ probability of remaining in their homes. As noted above, this rent negotiation system distinguishes between renovations that do not increase the apartment’s standard, such as energy efficiency refurbishment, and those that do. These latter renovations, which are the focus of the paper, prompt an increase in rent according to the present legislation.

Research design and methods

The paper is a result of a qualitative case study of the implementation of renovations in Herrgården in the city of Malmö, Sweden. There are 1 350 rental apartments in the area, and approximately 4 000 people live there. A majority of these are foreign born or have parents who were born abroad, while 36 per cent receive municipal welfare benefits (compared to three per cent in central Malmö) and only 31 per cent are employed (Malmö City Office [Stadskontoret, Malmö stad], 2019). Thus, a study of this area provides insight into how changes in private rental housing affect low-income and migrant groups. The present case study explores a paradigmatic case (Flyvbjerg, 2006) in that it both elucidates and provides new knowledge on the central features of more general changes in rental housing in Sweden. This study’s focus on Victoria Park and the company’s undertaking of renovations is motivated by the fact that this actor represents the actions of similar private rental companies in Sweden (cf. Elmgren et al., 2017). Hence, Victoria Park’s management of rental properties in Herrgården exemplifies an ongoing tendency that has been found to transform the socioeconomic character of rental housing (e.g. Baeten et al., 2016).

The study is based on statistics obtained from annual reports and the SUT, focus group meetings, seven interviews, photos taken by tenants, observations, and official documents from housing companies. From 2018 to 2019, I held six meetings with a focus group that consisted of between two and seven tenants living in Rosengård and Herrgården. The tenants were migrant low-income women who held a vulnerable position towards their landlord. Hence, I cannot account for how this group was selected, or provide more details about the participants, for reasons relating to anonymity. However, I accessed the research participants, both members in the focus group and the interviewees, through a snowball sampling approach, in which I began by identifying gate keepers and organizations in the area. The interviewees were tenants and representatives from private housing companies, the municipality, and the SUT. I have anonymized the interviewees.

I conducted observations on two meetings held by Victoria Park: one shareholder meeting in 2018 and one extraordinary general meeting in 2019. Both meetings, taking place in Malmö, took place due to Vonovia’s acquisition of Victoria Park. I gained access to the meetings as an assistant for a shareholder. Furthermore, I used tenants’ photos to explore their views on home and everyday life in the context of renovations (cf. Pink, 2013, p. 99).

I coded the qualitative research material using NVivo software. I applied descriptive codes to the material, for instance ‘renovations’ and ‘courtyard’, and analytical theory-inspired codes, such as ‘investment strategies’ and ‘rent increases’ (Cope, 2016, pp. 378–379). The research project’s theoretical perspectives informed the identification of descriptive themes, and I formulated the analytical themes in close relation with the empiric (cf. Cope, 2016 p. 379).

The coding process was part of an interpretive methodology which included a triangulation of data to gain deeper knowledge of renovations (cf. Denzin, 2012). Hence, I understood rent-levels to symbolize the exploitive relationship between tenants and landlords (Soederberg, 2018, p. 116) and the data from annual reports’ as having a role ‘in the political conflict that pitches housing as a civil right against housing as a commodity’ (Westerdahl, 2020, p. 2) and in corporate self-representation. The observations helped me to gain contextual knowledge of the company (Kearns, 2016). Last, I see research participants’ experiences as a measurement of the status of housing as a social right. It is therefore necessary to account for tenants’ experiences to recognize them as knowing and entitled to claim justice (Samzelius, 2020, p. 34).

Uncovering landlords’ renovations of private rental housing

A local player captured by an international venture

In 2008, the Swedish publicly listed real estate company Victoria Park AB (hereafter VP) founded a gated and upscale lifestyle tenant cooperative in Malmö (Grundström, 2018). The company has since then moved into the rental housing market by obtaining multifamily housing, mainly consisting of housing built during the 1960s and 1970s, expanding beyond Malmö to other urban centers in Sweden.

Since 2013, VP has significantly expanded its operations; for instance, the company has increased its housing stock by more than three times from 4 500 apartments in 2013 to more than 14 000 apartments in 2018 (VP annual reports, 2013–2018). The Malmö region represents 38 per cent of VP’s housing stock, the Gothenburg region represents seventeen per cent, and the Stockholm region represents 45 per cent (VP annual report, 2018). VP has increased its real estates’ market value by six times, from 3.1 billion Swedish crowns¹ in 2013 to 18.1 billion Swedish crowns in 2018. Meanwhile, shareholder values have augmented from 6.46 Swedish crowns net asset value share in 2014 to 34.66 in 2018 (Ibid.).

While VP’s main shareholder used to be its private founder, various investment funds, including pension funds, have increasingly been reoccurring as large shareholders in the company. In 2018, VP gained international attention when the American investor Starwood Capital Group and the German property company Vonovia demonstrated interest in investing in VP. Following a bidding war, Vonovia attained the larger part of VP’s shares and acquired further shares in May 2019. They then announced their plans to delist VP’s shares (VP annual report, 2018; Observation, 2019). In September 2019, Vonovia expanded in the Swedish market by buying Blackstone’s majority stake in the private rental company Hembla, which owns 21 000 apartments in the Stockholm region (Reiter & Verbeek, 2019). This acquisition, valued at 20.2 billion Swedish crowns, drove up the total volume of investments in residential property in Sweden to 52 billion Swedish crowns (Savills, 2019). Currently, Vonovia (whose main investors are the U.S. investor BlackRock and the Norwegian central bank) represents the largest residential landlord not only in Sweden, but in northern Europe.

Vonovia was created by a merger in 2015 between the German real estate company Deutsche Annington and GAGFAH. Wijburg et al. (2018, p. 1104) describe Vonovia as an example of financialization 2.0, where the focus is on long term, income producing asset management. Hence, while VP before the acquisition had introduced investment practices as a key accumulation strategy, Vonovia’s acquisition further amplifies this tendency.

Renovations as a part of an investment strategy

Renovations of single apartments are either approved by sitting tenants or conducted by landlords when a tenant has moved and prior to putting the apartment on the market again. The following section analyses how VP implements such renovations as an investment strategy and the legal enabling of these renovations.

In the Malmö region and the southern part of Skåne County, the level of renovations by private rental owners has increased by 286 per cent since the 2011 reform (Allbolagen) (Swedish Union of Tenants Southern Skåne, 2019).² Focussing on the area of Herrgården, this trend crystalizes. VP has owned the housing in Herrgården since 2012. These housing estates were previously the property of various real estate owners. The former property owners had varying degrees of discontent attached to their management, for instance, on one occasion, the city forcibly took over the estates (Hallin et al., 2010). These earlier owners were known as slumlords because they acquired housing at low prices and waited, without investing in or maintaining the estates, for a market upturn to obtain a higher profit when selling. Hence, VP’s establishment in Herrgården mirrors similar acquisitions of housing in Sweden’s urban areas but also reveals the tendency of financial vehicles to invest in distressed assets (cf. August, 2020; Wijburg et al., 2018).

In the 874 homes that VP owns in Herrgården, the company has implemented considerable changes. VP renovated approximately 39 per cent of the apartments in Herrgården between 2017 and 2019 (April). The company describes these renovations as value-adding management, and states, that ‘[w]e invest in our properties, which leads to improved standards, increased rents and higher market value’ (VP annual report, 2017, p. 6).³ However, there is still untapped potential in future renovations throughout the whole housing stock, given that 64 per cent of the stock is unrenovated (VP annual report, 2018). Additionally, the general turnover rate of tenants is approximately 17 per cent, which enables these renovations to take place when a tenant moves (Ibid).

VP (annual report, 2018, p. 20) states that renovations can increase an apartment’s rent level by 35 to 40 per cent. Thus, following renovations, rent levels across VP’s whole rental stock have increased by 31 percentage points since 2013, compared to the general rent level increase of eight percentage points, thereby increasing the rent revenues by 23 per cent (Ibid., p. 19). However, the real estate market value during the same period increased by almost six times and the shareholder values by almost five times, as previously mentioned. Below, in Figure 2, I report the market value development from 2013 to 2018.

Figure 2. Market value, Victoria Park AB. Data source: Victoria Park’s annual reports (2013–2018) and Savills & Bryggan (2018).

Hence, while increased rent revenues are one motivation for private landlords’ use of renovations as an investment strategy, it is the combined upturn of market and shareholder values that strengthen these actors as financial vehicles (cf. Uffer, 2011, p. 112). While the calculative process through which market values are drawn is obscure, it is essentially the combination of expected yield, present rental incomes, and future expected incomes calculated from planned value-adding investments (renovations) that affect asset market values (Savills & Bryggan, 2018). For instance, the overall expected yield levels, i.e. the expected value return from investment (Westerdahl, 2020), have decreased over the years (see Figure 3). This approach thus reflects a refinancing strategy (cf. Botzem & Dobusch, 2017), as these actions enable further debt taking: VP carry out renovations that improve market values, and the ‘company can then borrow up to 65 per cent of the new market value at a low cost’ (VP annual report, 2018, p. 46). However, as the market values increase, VP still reports falling loan-to-value ratios (see Figure 3), which favours their creditworthiness, thus making further refinancing possible.

Figure 3. Loan-to-value and yield requirement, Victoria Park AB. Data source: Victoria Park’s annual reports (2013–2018).

The effect of revaluation and refinancing on affordability in Herrgården is substantial. The rent increased by 25.5 per cent in total from 2014 (August) to 2019 (April) (Table 1). This increase was not only due to renovations but also the result of a general increase every year following rent negotiations, i.e. an increase of 8.9 per cent from 2014 to 2018. However, the increase in this case was additionally caused by a use-value overview conducted by the SUT, which recalculated the use-value of a property and set a new rent level on top of the general increase. When including this rent increase, we can assume that use value standard-increasing renovations represent approximately 51 per cent of the rent increase in VP’s housing stock in Herrgården. However, the revaluation of the properties’ use-value in 2015 augmented the asset value by approximately thirteen to seventeen per cent (based on the author’s calculations from annual report data).

Table 1. Rent increase from 2014 (August) to 2019 (April), Victoria Park’s housing stock in Herrgården, in per cent. Data source: Swedish Union of Tenants Southern Skåne.

Rent increase from 2014 (August) to 2019 (April), Victoria Park’s housing stock in Herrgården, per cent
Total increase of rents	25.5
Increase due to general rent increase, and use-value overview	12.5
Assumed increase due to renovations	51

Rent regulation and public housing legislation are key factors involved in the implementation of the financialization of rental housing. Byrne & Norris (2019, p. 4) have described the ‘piecemeal’ slow shift towards financialized housing provision in Ireland by emphasizing how ‘transformations in social housing policy played an important role in embedding housing (especially the private rental sector) in financial market cycles’. We find a similar shift in Sweden, where changes in public housing legislation have created space for private landlords to increase their rent revenues (cf. Grander, 2018b, p. 115).

First, without the normative function of public housing sector rent levels, which the 2011 reform abolished, rent-increasing actions within the private sector can to a greater extent influence the overall rent levels within both public and private rental sectors. VP acknowledge renovations as a rent-increasing action and the possibility of completing these renovations within today’s framework for negotiated use-value rents: ‘[t]he regulated rental market in Sweden limits rent level increments, yet the rent levels can increase substantially through investments in property-improving actions’ (Annual report 2017, p. 18). Thus, VP uses the legal framework of use-value set rents when planning for and perform renovations. Vonovia also identifies the possibility of accomplishing renovations due to Sweden’s use-value set rent system as a reason to invest in Sweden’s residential market (Vonovia, 2018).

Second, while direct evictions do not threaten the right to occupancy, renovations undermine the use-value rent system’s function of guaranteeing the right to occupancy by preventing sharp rent increases. August & Walks (2018, p. 133) explain that ‘[d]isplacement is built into the business model of many financialized landlords, who pursue vacancies to achieve large rent increases upon turnover’. For instance, there is a recurring awareness of vacancies in the valuations of companies (Savills & Bryggan, 2018; 2019). Low vacancy rates (approximately 0.5 to 1 per cent in Sweden) play the dual role of creating a safe investment as future rents appear secure, while at the same time, some degree of turnover indicates a possibility of carrying out renovations without the need to involve a sitting tenant. Inconsistently, both the low risk tied to few vacancies and the turnover rate’s possibility to obtain future values lead to a revaluation and increase in real estate market values.

In sum, the legal framework, the use-value rent system, and the 2011 public housing reform enable private rental owners to increasingly complete renovations as an investment strategy. Accordingly, the combination of public housing deregulation and the remaining tenure legislation creates an enabling environment. As private rental owners do not have to attend to negotiated rent levels within the public housing sector, they navigate the rent setting system and make improvements that lead to rent increases.

Consequences of renovations

This section highlights how renters have become central to Victoria Park’s investment strategy and how tenants experience this process. In this analysis, I draw on the notion that emotional experiences with and responses to renovations are entwined with the uprooting of the traditional universal housing policy, including its perception of the right to housing (cf. Samzelius, 2020; Polanska & Richard, 2019). First, however, I account for how declining affordability follows from renovations, as affordability has been a central aim of Sweden’s housing policy.

Limited access to affordable housing is a primary consequence of renovations. This growing lack of affordable housing is acknowledged by the municipality, which offers both welfare benefits that partially cover the cost of living (rents) and provides ‘social’ housing contracts for households who experience trouble entering the housing market (cf. Grander, 2017). These contracts mean that the municipality rents apartments in various estates and city areas from public and private landlords with the agreement to sublet them to vulnerable households. A public servant (Interview, 2018) working with the provision of such contracts said, ‘… we feel that affordable housing doesn’t truly exist anymore …’ and ‘… actually, the costs are the biggest problem, it’s expensive, it’s very expensive to live …’. The difficulty with providing affordable housing is linked to the increased occurrence of renovations:

… we notice it. I am not only thinking about increased costs for us but more about the consequences for tenants as there are fewer affordable apartments to apply for. It is a little bit about welfare benefits. If you receive welfare benefits you have also a norm for what is an acceptable rent, and I have found that this norm does not change in accordance with rising rents … (Interview with public servant, 2018)

While the total effect of renovations on the social services excessive housing costs is unknown (Email correspondence with Malmö Municipality, 2019), some landlords quickly complete renovations that motivate an increase in rent: ‘… so, some landlords put new parquet floor in the whole apartment because it allows them to charge a higher rent, and you can certainly put forward many other arguments as to why you do that, but the fact is that it increases the rent, while a plastic floor does not increase the rent …’ (Interview with public servant, 2018). Furthermore, municipal welfare benefits appear as a stable income for landlords (cf. Soederberg, 2018), and long-term tenants receiving these are regarded as a low risk: ‘[f]or objects which are dominated by publicly funded tenants with longer leases, a lower discount rate is applied during calculations of the present value of annual cash flows to reflect the lower risk associated with these types of conditions’ (Savills & Bryggan, 2019). This indicates how precarious tenants with welfare benefits are embedded in calculations where lower risk is interlinked with augmented market values.

Tenants’ emotional responses reflect the issues of rising rents and limited affordability as they experience more stringent rules following VP ownership and they worry that the rents will increase. The following is from my focus group notes (January, 2018).

… [a] person explains the new rules since VP took over, harsher rules, that welfare benefits no longer go as income, that they only accept formal income, but also, that the rents have increased substantially every year and that they worry about what will happen in the future if the rents continue to increase more…

The tenants also explained that it is difficult to contact the company or to get VP to fix things unless the repair would justify a rent increase, mirroring previous research that has reported the unresponsiveness of private equity funds to incident reports (e.g. García-Lamarca, 2020). Tenants stated ‘…that the balconies are rotten and that VP does nothing…’ (Focus group notes, 2018). These descriptions of poor maintenance are also reflected in some of the pictures taken by a tenant (see Figure 4). Tenants further described poor living situations due to insect infestations: ‘There are still cockroaches in some houses, one of the tenants has problems with both cockroaches and bedbugs’ (Focus group notes, 2018).

Figure 4. Laundry room and balconies. Photos by tenant.

Additionally, the effects of renovations are not fully disclosed to tenants. Renovations are offered to sitting tenants through a leaflet distributed throughout the area.⁴ In the leaflet, VP offers tenants a ‘summer deal’. Tenants can go on a four-week vacation and return to a renovated apartment. The leaflet states that this is ‘[a] perfect opportunity for you who are going on a longer vacation or working in another city during the summer’ (Victoria Park, 2018). According to the leaflet, the first people accepting the deal will get a ‘surprise’. The renovations mentioned in the leaflet consist primarily of standard and rent increasing measures; however, VP does not inform the tenants about the rent increases. The favourable presentation by VP and the omission of information about consequences and tenants’ rights, though not unlawful, confirms previously reported pressures used by landlords when advocating for renovations (cf. Baeten et al., 2016).

Furthermore, when VP conducts renovations, the tenants claim that their power to object to these renovations is limited. Nour⁵, a woman in her forties who had lived in her apartment for approximately fifteen years and now rented from VP described her experience regarding renovations to her apartment.

… they have renovated, the bathroom and the hallway, added new flooring in the hallways, they said it was obligatory for everyone, but that you could also renovate more if you wanted. I [the interviewer] ask about rent increases and she says that there is an increase every year, and I [the interviewer] then ask if that was specifically because of renovations, and she says it was. I [the interviewer] ask, ‘but couldn’t you choose, approve the renovations?’ She says that they didn’t want to [renovate] but that VP said they couldn’t say no because there were some issues with the bathrooms that required every bathroom to be renovated. For example, they [the tenants] didn’t want the shower where they (VP) placed it but where it was before, although VP said it was impossible … (Interview with Nour (pseudonym), 2018)

This experience elucidates the legal ambiguities that arise through renovations. Although tenants must approve renovations, Nour claimed that she could not refuse them. She also stated that she experienced a lack of control during the renovation process. Moreover, VP did not inform the tenants about the acquisition by Vonovia. When I asked the tenants if they knew about the sale of the property, they responded that they had not heard about it in advance.

In conclusion, rising rent levels and the perception of welfare benefit recipients as indicative of a secure investment landscape, combined with emotional responses of worry and uncertainty, poor maintenance and insect infestations demonstrate how the right to housing has been circumscribed.

Conclusion

The paper aimed to uncover how private landlords undertake renovations as an investment strategy and how this affects tenants and, in turn, feeds into and reinforces the hybrid character of Sweden’s housing system. Drawing from a case study of Victoria Park’s implementation of renovations in the neighbourhood of Herrgården, the paper has demonstrated how VP’s use of renovations destabilizes the tenure legal framework, leading it to no longer fully ensuring the right to housing as once guaranteed through Sweden’s status as a welfare state. While this tenure legislation once hindered steep rent increases and therefore enabled the tenant to remain in their home, today, these two pivotal aims of the legislation are breached when landlords perform renovations. This consequence is mainly due to the fact that renovations have considerably increased rent levels, hence limiting housing affordability, accessibility, and security. Meantime, tenants have experienced poor maintenance, worry, uncertainty and remained uninformed about ownership changes and of their rights regarding renovations. Their emotional responses echo the experiences of tenants facing property renovations in other Swedish cities (Polanska & Richard, 2019) and previous studies’ reports on tenants’ encounter with rental housing financialization in other countries (Fields & Uffer, 2016; García-Lamarca, 2020). Furthermore, these emotions reflect how tenants become both unwilling and unaware subjects of financialization (cf. Fields, 2017), as they are uninformed about ownership changes and of their rights.

Following these conclusions, the paper argues that private rental landlords’ use of renovations as an investment strategy undermines the traditional social right to housing within a universal housing policy context. As renovating rental housing increases rents, it importantly also increases real estate and shareholder values. Accordingly, renovations mediate value between the tangible homes of tenants and liquid financial markets (e.g. August & Walks, 2018), thus indicating a tendency towards the financialization of rental housing in Sweden.

Following these results, the paper has contributed deepened knowledge on how international financialized landlords’ use of investment strategies is embedded in local context. As such, the financialization 2.0 tendency described by Wijburg et al. (2018) is not a detached financial corporatism, but a situated and lived value extraction. Hence, when translated through national legal settings (August, 2020; Byrne & Norris, 2019), rental property owners’ value-adding management and refinancing strategies are situated in the everyday lives of tenants, reinforcing social differences (Crosby, 2020; Fields, 2017). The study, thus, confirms earlier studies of how financialization tendencies accentuate social inequalities (García-Lamarca, 2020).

As the United Nations has strengthened its call for securing housing as a right globally, this paper has contextualized how the social right to housing in Sweden’s universal housing policy context provides a particular backdrop for financialization tendencies. Hence, the study suggests further investigations of how financialized landlords’ use of investment strategies (renovations and alike) undermines the right to housing in other policy contexts. Also, an evident gap in our understanding is how nations and cities can secure the right to housing, despite the attempts by financialized landlords to treat housing as a financial asset.

Acknowledgments

I would like to thank Özlem Çelik for supporting my original idea on the manuscript. I am also grateful for the comments on earlier drafts by Peter Schmitt, Eva Andersson, Brett Christophers, and Bo Bengtsson. I also appreciate the support by Bo Malmberg. Thanks are moreover due to participating interviewees. Last, I appreciate the editors’ and referees’ useful feedback. All remaining errors are the responsibility of the author alone.

Disclosure statement

No potential conflict of interest was reported by the author.

Correction Statement

This article was originally published with errors, which have now been corrected in the online version. Please see Correction (https://doi.org/10.1080/02673037.2021.2006511)

Additional information

Notes on contributors

Jennie Gustafsson

Jennie Gustafsson is a Ph.D. candidate researching rental housing and municipal local statecraft in Malmö, Sweden. Her work aims to further knowledge on the local political economy through an analysis of the intersection of public housing, private rental housing, and municipal urban governance.

Notes

1 One Swedish crown equals 0.095 Euro (September 2020).

2 This data includes smaller changes, for example installation of a dishwasher, and larger renovations.

3 Citations are translated from Swedish by the author.

4 VP has distributed this leaflet more than once and contacts in the field have reported that tenants in other neighbourhoods have received a similar leaflet.

5 Pseudonym.