Lobby groups for the Danish pensions and property sectors have spoken out against proposed changes to the Housing Regulations Act, saying they could cost pension funds around DKK10bn (€1.4bn) through writedowns in property values.

The Danish Housing Minister Kaare Dybvad Bek recently said he would invite parliamentary parties to negotiations on the Housing Regulations Act, on the basis of a new report on the topic from an expert group commissioned earlier this year by the Ministry of Transport and Housing.

The background to the investigation was an ongoing public debate about the purchase of Danish rental properties by foreign companies and the resulting marked increases in residential rents, the ministry said.

The report sets out possible changes that could be made to Section 5.2 of the act, which allows landlords to make major renovations to rental apartments and then raise rents.

Jannick Nytoft and Per Bremer Rasmussen, CEOs of the Danish Property Federation and Insurance & Pension Denmark (IPD), respectively, said pension savers would lose out if Section 5.2 were reduced or abolished, because, as landlords, some pension funds depended on the practice.

“Broadly speaking, losses of up to 50% of the value of the property are expected, and in some cases the value may fall by more than 70%. For the hardest-hit pension savers it could cost them DKK30,000 of their retirement wealth,” they in a commentary on IPD’s website, which was also published in Danish daily Politiken.

In a separate commentary by the Danish Property Federation, Nytoft said scrapping the rule would cost pension funds around DKK10bn, citing an analysis from the firm Copenhagen Economics.

Dybvad Bek described the expert group’s report as a real and important contribution to the political discussions on Section 5.2 that now had to be begin.

“The report shows that for landlords, including foreign equity funds, it can be an overly lucrative business to buy Danish rental properties for which you can get large returns,” he said.

This practice was to the detriment of tenants and social cohesion in big cities, he said, where it was becoming increasingly difficult for citizens with ordinary incomes to find a home they could afford.

Nytoft and Bremer Rasmussen said if there were examples, as reported in the media, of rents being unreasonably raised or tenants having been squeezed out to enable modernisation, then it was of course relevant to discuss and possibly adjust the legislation.

“An obvious option is to strengthen the rent boards so that they can settle disputes more quickly and so create increased security,” they said. “However, in order to adjust the rules, it is important for it to be balanced so that it does not have unintended consequences.”

All rental property owners, and not just foreign investors, would be affected by the abolition or restriction of Section 5.2, they said, and owners covered by the paragraph would spend significantly less on maintenance.

As a result, public spending on urban renewal would increase, and there would be losses for residents of cooperative housing and pension savers.

The two CEOs said a model needed to be found where it could still pay for long-term and responsible investors to maintain and renovate rental properties in an energy-friendly manner.

“At the same time, this objective will limit the negative consequences for cooperative housing and pension savers,” they said, adding that their organisations would like to participate in discussions on models in the expert group report that went in that direction.

Meanwhile, tenants’ organisation Lejernes Landsorganisation (LLO) called for Section 5.2 to be abolished altogether. Citing the experts’ report, it said that under the general rules of the Rent Act, the average rent was DKK791 per sqm compared to DKK1,407 under Section 5.2.

Helene Tox, LLO’s national chair, said: “It is an unhealthy system that gilds the landlord if the tenant is given notice to quit. It can tempt weak souls, and we find that more and more landlords are being tempted.

“We believe that the paragraph should be abolished. It will stop the landlord from being rewarded for getting rid of old tenants, and provide a reasonable level of rent so everyone can afford to live in the big cities.”