michaelfalzon
Michael Falzon

The rental market crisis

People on subsidised rents should be means-tested every five years or so with their rent increasing as their level of income increases. Minor increases for inflation should also be part of the picture

michaelfalzon
Michael Falzon
8 August 2017, 7:30am
The boom is practically uncontrolled. Landlords keep increasing their rent, while still having to face big legal problems
The boom is practically uncontrolled. Landlords keep increasing their rent, while still having to face big legal problems
About this time last year, I wrote a piece about the problems in the Maltese rental market (Rent without tears – August 2016). Since then the crisis has gone from bad to worse.

Most people are settled in their own house or flat and do not feel the pinch. The only reaction I got for the article was an angry piece penned by someone who was a victim of some landlord’s excesses and assumed that I was defending landlords in general. 

Those who know the history of the rental market in Malta ever since the government froze rents to 1939 levels just after the war (World War II – for the benefit of the younger readers) know that many ended up selling their property for peanuts with the tenants – who were given an unlimited legal tenure (that could be inherited) – making a lot of money out of somebody else’s property.

The part liberalisation of the rental laws and the end of the government’s power to requisition houses did not suddenly revive the rental market. But the advent of the deluge of foreigners working in Malta, all looking for a place to live in, has now pushed the rental market into a boom that probably never existed in Malta. 

Those who are always moaning about building permits and cranes do not realise that were it not for the current building boom, the supply of residences for rent would be even less than it is today and the rents would have spiralled up even further.

The boom is practically uncontrolled. Landlords keep increasing their rent, while still having to face big legal problems involving prolonged legal action when it comes to eviction of non-paying tenants. 

Many landlords do not even declare their income to the Inland Revenue for tax purposes. The rental subsidy system (based on a means test) introduced by the Housing Authority had to be tweaked so that landlords need not report themselves for tax evasion. In essence, the Housing Authority even became an accomplice in this tax evasion.

The government took the right step when rental income was subjected to a 15% final withholding tax (just as interest from capital deposited in bank accounts is taxed) and today the amount of declared and taxed rental income has increased appreciably.

Yet there are problems.

Building more social housing will not solve the problem. We have been building social housing for donkeys’ years and the demand never falls. As I like to point out: if supply is for free, demand is infinite.

One big problem is that a young couple who qualify for the lease of a government owned unit at a subsidised rate keep paying at the same rate even when they move on in life and do not technically qualify for a subsidy any more. When the first Muscat administration decided to follow a decision actually taken by the PN government to raise these rents, Simon Busuttil stupidly started hollering that the government was taxing the poor. Obviously, people on subsidised rents should be means-tested every five years or so with their rent increasing as their level of income increases. Minor increases for inflation should also be part of the picture.

Today many young couples who intend to marry cannot afford to buy a flat. But they cannot afford to rent one either, because landlords do not accept to rent their property on a long-term basis.

A reform is warranted. But this reform should regulate the rental market and not stifle it. 

In my article last year, I said that Malta needs a modern tenancy law with some authority where lease agreements could be deposited. This authority would have the power to evict tenants and return the residential unit to the landlord if the tenant does not pay the rent due.

Any rent agreement that is not registered will not just be deemed illegal. It will give the tenant security of tenure so that the landlord will not be able to increase the rent or evict the tenant. Attempts to evict such tenants will be stopped by the authority and the parties would have to come to a registered agreement after the landlord pays a fine. This is the only way – in my thinking – that will stop landlords from avoiding tax due on income from rents.

That is how one reins in tax evasion on rental income.

Together with this stick, one would have to offer some carrots, of course.

Tax on rent agreements should be on a decreasing scale, the longer the lease is for, the less is the tax level. A landlord renting a flat from year to year should be taxed at a higher rate than one renting his property for a long period without any prospect of increases in rent. Security of tenure should therefore be for a limited pre-established time period – rather than perpetual – and the length of the time period would be linked to tax rebates.

During the election campaign, the Prime Minister hinted that the time has come for some sort of regulation in the rental market. I cannot but agree. Yet we should be careful to avoid destroying the rental market that has been created in the last 15 years or so.

Yes we need to protect tenants, but we also need to give landlords control on their property and acknowledge the right for a decent income from it.

A monster of a failure

Earlier this week, Michael Briguglio declared the Planning Authority to be a failure. To pass such a sweeping judgement, one would have to compare the situation before the Planning Authority was set up and the current situation. 

Perhaps many are too young to know how building permits were issued in the Lorry Sant days. From this angle, the Planning Authority taking decisions based on planning and technical reasons bears no comparison with the ministerial whims (and corruption) that it replaced.

The launching of the Planning Authority heralded a great culture change. And culture changes are always resisted. Many started accusing me of having created a monster. Some even said it was better to pay some politician underhand and get a permit than try to justify the technical grounds why a permit made sense. 

Today the ‘monster’ has been tamed! Humans tend to overcome obstacles in one way or another.

The less said the better.

As I said, the Planning Authority would have indeed failed if the situation is as bad as or worse than before it was set up.

For obvious reasons, I refrain from passing this particular judgement.

[email protected]

michaelfalzon
Michael Falzon is a former government minister who served under several Nationalist admini...