The rental market is out of control | Johanna Axisa MacRae

As rental prices skyrocket, Johanna Axisa MacRae, chair of the Malta Tenants’ Association, argues we can no longer ignore the corresponding social realities

raphael_vassallo
Raphael Vassallo
5 February 2017, 10:00am
Last updated on 6 February 2017, 9:21am
Johanna Axisa MacRae (Photo: James Bianchi/MediaToday)
Johanna Axisa MacRae (Photo: James Bianchi/MediaToday)
There is something vaguely ironic about the venue for this interview: a hotel lobby in the heart of Sliema. It may have been chosen purely for the sake of convenience... but the purpose of the interview is to discuss issues concerning the rental property market: and here we are, slap-bang in the middle of a town where rental value has skyrocketed by a barely believable 80% in the past six years alone.

Johanna Axisa McRae is currently the chair of an NGO called the Malta Tenants’ Association. She has, for some time now, been lobbying for awareness on tenants’ rights; and, whether or not due to her efforts alone, similar complaints seem to have finally made their way onto political/governmental channels. 

In a recent press conference, Prime Minister Joseph Muscat hinted that his government would consider other possibilities – including rent control measures – if the current strategy of increasing subsidies fails.

But what are the problems faced by tenants in Malta, anyway? And, more importantly, what can actually be done about them, in what is effectively a free-market-governed EU member state?

“It’s a complex issue to sum up in a few words. Let me give an actual example: I have a relative, who is representative of many people caught up in similar situations. She has had to move back with her parents in her mid-40s, because she’s been unable to work for many years. She basically has to survive on €400 a month. She is not eligible for social housing, and in any case the waiting list is too long. So she had to rent privately. Rents have steadily been going up, from €200, to €250, now to €300... so out of an income of €400 a month, she is left with only €100 to actually live off.”   

Many people are finding themselves in similar situations: property is becoming more unaffordable to first-time buyers, so more and more people have to rent. This reminds me of a recent interview with Finance Minister Edward Scicluna. When I raised the issue of rental inflation, he conceded that it was a problem, but added that it only affected a small number of (mostly foreign) tenants.

Is this a correct appraisal of the situation?

“It’s not just foreigners; and while the numbers are small for now, this is changing fast. Maltese society is changing, in fact. There are more people looking for alternative accommodation for a wide variety of reasons: divorce, separation... young people are leaving the family home earlier than previously...  it’s no longer the case that young people live with their parents until getting married.”

Admittedly, however, the problem remains difficult to actually quantify.

“I have anecdotal evidence, from my own experience and that of other members of the association. For proper statistics you should speak to an expert. But I extrapolate from what I see around me. I have young colleagues who have just started teaching, who cannot afford to buy a property. Part of the problem is that salaries are very low here. But there’s another reason which is really quite...” she breaks momentarily. 

“I get very upset about this. Coming back to that relative of mine, her landlord was not declaring rental income. This is pervasive. There are two problems with this: one, obviously the tax coffers are not going to be as full; and two, it causes problems for the tenants. They cannot apply for social services and say, ‘this is my rental contract, could I have a subsidy?’ And they cannot go to ARMS Ltd for subsidised utility rates either, because they need their landlords’ permission. There seems to be a triangle between ARMS Ltd, the landlord and the letting agent. 

“No one tells tenants that there are actually two utility tariffs, and the default tariff is the incorrect one: it’s for summer residences. To get the proper [lower] tariff, you have to have your landlord’s signature on ARMS’s ‘Form H’. A lot of landlords aren’t doing that: I would say around 90% of them. Most of the tenants in my group have this problem...”

But isn’t this a straightforward case of tax evasion? If so, couldn’t this relative (or anyone else in the same predicament) report the abuse to the relevant authorities? 

She shrugs. “Nobody seems to want to know. I wrote to Inland Revenue quite a while ago, and the response I got was along the lines of ‘we can’t do anything about it’. I can’t remember the exact wording but I still have all the correspondence at home…” 

What about ARMS? “I wrote to Konrad Mizzi when he was still Energy Minister, and copied it to Joseph Muscat. But nothing was done about it...” 

Well, in that recent press conference, Muscat claimed his government IS doing something about it... by increasing rental subsidies.

“I think subsidies are important, but they do not address the core issue. The subsidy amounts to €80 a month... and is now set to increase to €160. It’s still not enough.  You cannot live properly on €200 a month, which is what my relative would be left with after paying subsidised rent. Besides, what has happened is that some landlords have interpreted the subsidy as ‘permission’ to increase rents even further. This is inevitable, if there are no measures to stabilise or control rent... we’re not talking about draconian measures: like a post-world war scenario...”

Before turning to what measures can be implemented, let’s take a look at those currently in force. What sorts of regulations exist at present to govern the rental market?

“There are three rental regimes: private, social housing and [permanent or temporary] emphytheusis. All three are... crazy. With social housing, you only pay around €200 a year... and good luck to them, I have no problem with that. But then, the two parties have been arguing about Labour’s implementation of a Nationalist proposal, which was to increase the cost of social housing from €185 to €203 a year. An increase of €18 euros a year: that’s €1.50 a month. They’ve been fighting about this; it’s been in the papers.  But at the same time, until recently both parties have been adamant that they were not going to consider rent control in the private housing sector. To me, that’s an insult. All this fuss over €18 euros a year, yet they ignore a much larger problem...”

Speaking of which, how big is this problem, anyway? By any standard, anywhere in the world, the 80% increase in Sliema rental prices would be considered an alarming rate of inflation. Admittedly Sliema is considered an upmarket location... but it is reasonable to suppose that the rental market as a whole has similarly skyrocketed. Is that supported by her experience?

“Definitely. It is out of control, in fact. Also, I think there is a basic issue with salaries here. Why should a landlord get as much for renting out a property, as a teacher gets as a salary? It’s not a skilled profession. There are social considerations, too. If accommodation is priced out of reach of ordinary salaried employees, we can only expect poverty and homelessness to increase...” 

Coming back to her communication with the authorities. What sort of response was expected? What should be done about it at government level, anyway?

“In my opinion we need to sort out all three rental regimes. Social housing has to increase. They have to look at who, exactly, is eligible for social housing. They need to build more social housing units. In the private sector, we urgently need the registry of landlords. Other issues include vacant properties: these need to be bought onto the market, through various measures and incentives... such as a vacant property tax. In the past they had introduced some measures, like limiting rental increases to not more than 20% in three years... or that the minimum rental contracts have to be for three years. The situation now is that, every time a rental contract expires – usually they are one-year contracts – the rent goes up. Controlling that would calm the market. But we have reached a point where, because of the situation with the post-war reform – which was unfair on the landlords in the long term – we can’t even talk about this issue anymore. It comes down to the history of renting in Malta...”

In this sense, is the emphytheusis segment that is in most urgent need of a reform?

“I think most of the anti-rent control sentiment stems from this. Historically, there were a lot of private landlords who were unfairly hit by the previous regime. They were actually poorer than their tenants, and in some cases still are. The European Court of Human Rights has ruled against Malta more than once on this issue, and Malta has had to pay compensation to these landlords. This influences public opinion. But we’re not suggesting going back to that situation, far from it...” 

The problem, she suggests, is that the pendulum has now swung to the opposite extreme. It is tenants who now need protection, not landlords.  A happy balance has yet to be found.

“Another thing is that the issue does not only concern rent control. We need to talk about standards of accommodation, too. I have lived in some horrific rental accommodation, but there was nothing we could do about it. The first property we rented in Malta was when we first moved here in 2010. We paid €550 a month. The property itself was nice, but it was very run down. The electrics were faulty, the sockets didn’t work, the toilets leaked, and so on. When it came to renting a second property, we were determined to pay the correct tariff. I calculated that we would have overpaid by €85 a month on the wrong property. With our budget, that meant we had to rent an even worse property than before. This one was truly awful: it had a sign saying ‘West Germany’ on the circuit breaker [i.e., it hadn’t been changed since 1987 latest]. You couldn’t switch on an electric kettle, because the circuit breaker would trip. I needed an extension lead running right across the kitchen just to use the washing room...”

But aren’t their regulations that hold landlords responsible for the upkeep of the property? 

“I think what happened was that – this is my own theory, but I think it’s correct – because the emphytheusis regulations until 1995 were so favourable to the tenant,  it came to be considered as the tenants’ responsibility to look into all maintenance except external, structural issues. But there’s no law as such. The only law that regulates the rental market is the very basic Civil Code: and it’s very generic...”

This raises the question of what should be done to fill the various lacunae. So far we have mentioned the lack of a registry for landlords, the fact that the rent is often undeclared, the need for measures to control rental inflation, the lack of liability for landlords in case of substandard accommodation... It’s quite a long list.

“To be honest I’m a little lost, too. I’ve been reading up on how other countries cope with the same problem, and it’s not just Malta. This is happening on a global scale. I think the difference is that in Malta, we’re starting at ground level. I really think that the ideal solution would be a combination of three things: increasing salaries; finding a balance between protecting the tenants – and their human right to a roof over their heads – while also coming up with measures to make it worth the landlord’s while to put property up for rent. I’ve mentioned some possible measures already: minimum lengths for contracts; a limit of rental increases – in Germany for instance, you cannot increase rent by more than 20%.”

Another grey area, she adds, is the renting of single properties to multiple tenants. 

 “I think if landlords had to have a licence for letting a property to more than a certain number of people, this would also work to calm down the market. The problem is that many tenants are sharing a property, which is distorting the market and pushing prices up sky high. Regulation already exists in other countries such as the UK. 

“If different households live in the same property, then the landlord has to have a licence: ‘HMO - houses in multiple occupancy’. I think that if there were a maximum number of tenants living in a property - and if this were enforced - then it would definitely bring down rents.”

And yet it seems that all along, the Inland Revenue Department, ARMS Ltd, the Energy Minister and the Prime Minister were all alerted to this situation, and have so far taken no action. How does Axisa McRae interpret this reluctance to face the problem?

“I’m afraid I’m very cynical, so I see it as a case of: ‘foreigners can’t vote, so we don’t care about them; and the Maltese vulnerable tenants, who are few in number and invisible... they are a worthwhile sacrifice on the altar of economic success.”