In the early 2000s, many rental apartments in Stockholm were converted into co-ops. Photo: Mostphotos/Mickes fotosida

Household consumption after the conversion of rental units

The analysis is based on a quasi-experiment involving attempts to convert rental units into co-ops in Stockholm during the early 2000s.

Some of the attempts failed due to changes in legislation, and these serve as a control group. The research group uses registry data from Statistics Sweden to study how the change in households’ balance sheets affects consumption and saving behaviour.

Roine Vestman developed the method for measuring consumption using registry data on assets and liabilities in his doctoral thesis, after similar methods had been applied by Danish economists.

Figure: Roine Vestman

A conversion leads to a significant expansion of households’ balance sheets (see the figure above). The main results show that households use the addition in various ways. Younger households increase their consumption expenditures more than older ones. Households facing fluctuations in incomes use the co-op as collateral to borrow.

”It is almost impossible to reconcile the consumption patterns we observe with older models of household consumption. However, the patterns align with newer models based on so-called incomplete markets. That class of models has gained prominence in the macroeconomic field in recent decades. Our study provides strong support for that research direction,” says Roine Vestman.

The city of Stockholm sold the properties too cheaply.

According to Roine, the study can also be seen as an evaluation of the policy around public housing conversions:

”The city of Stockholm sold the properties too cheaply. Although the direct wealth transfer was relatively small – the biggest gain was that the affected households already had a lease agreement – neither the market value in the co-op market nor the likely future price development was taken into account. With the help of the wealth registry, we see that those who converted have benefited significantly from the rise in housing prices that followed.”

Bonus from the Swedish House of Finance

Roine Vestman is awarded a bonus of approximately 200,000 SEK from the Swedish House of Finance for the article. The Swedish House of Finance rewards researchers at Swedish academic institutions who publish within the field of financial economics in highly ranked journals.

Text: Roine Vestman and Anneli Eriksson