Internal rents and the ownership of state properties: experiences from Sweden

A new article by Roland Andersson and Bo Söderberg, Journal of Corporate Real Estate

2011 Internal rents and the ownership of state properties: experiences from Sweden, Vol. 13, No. 1, pp. 64-76.

Abstract
Purpose – The purpose of this paper is to show that general- and special-purpose properties have to be dealt with differently by the public sector.

Design/methodology/approach – Application of standard economic theory concerning pricing of properties and infrastructure. The issues are analyzed based on experiences from Swedish state-owned properties.

Findings – The distinction results in quite different public property management strategies. Special-purpose properties have no short-run alternative use and have limited rental and capital values, unlike general-purpose properties. Thus, to apply a required rate of return based on assumed capital values universally will lead to inefficient use. For special-purpose properties, short-run marginal costs (SRMCs) should be charged – no more.

Practical implications – General properties owned by the state represent a suitable case for privatization. For special-purpose properties, only SRMCs should be charged.

Orginality/value – The paper makes a distinction between two kinds of state-owned properties; general- and special-purpose properties, and analyzes the important consequences in property management.

Keywords Rents, Rate of return, Costs, Public administration, Property management, Sweden.