Rent reform revisited: caution with fairness is the only way forward

Apart from reactions to first impressions, there has been little public reaction to the White Paper on rent reform published over six weeks ago.

Some 20 NGOs made proposals that increase the level of regulation proposed by the White Paper, while in a meeting organised by the Malta Developers Association on the issue, several landlords rejected any loss of freedom of contract in the new law, with some saying they would withdraw their property from the market if this had to happen.

Everybody seems to look at this problem from one’s own narrow view while the government has to look at the big picture. That is why consensus on this issue is paramount.

But first, how have we got here?

One of the unforeseen results of our fast expanding economy since Malta entered the EU was the massive inflow of foreign workers and the resulting extraordinary demand for domestic accommodation. This is causing major problems to those trying to start to climb the property ladder and potentially can cost this economically successful administration a sizeable chunk of votes.

The rental market has undoubtedly gone wild with foreign gaming companies listing it as a major obstacle to their relocating to Malta. In these circumstances, the objectives of the government White Paper are laudable but one has to realise that it has opened a can of worms.

For starters, rent control in Malta has a very nasty record. Briefly, it started as a post-war social remedy in order to make up for the widespread destruction of accommodation during the Second World War. The government could not then cope with the situation and so pushed the responsibility of social housing on the individual, small, private landlord. Rents were pegged ‘temporarily’ at the 1939 level.

Since then, there have been several legal amendments that tried to redress this unfair decision at the landlords’ expense but to this day, 80 years later, many small owners still bear the scars of that decsision and the abusive and irresponsible use of requisition orders. Owners got paltry rent increases – if any – and these kept rents far below the market value. This translated into the practical loss of the property of the second generation, whose parents’ property had their rents levels set permanently some eighty years ago.

The net result was that owners preferred to keep their property vacant, leading to the total collapse of the rental market for decades.

This situation had started to change with the strong inflow of thousands of foreigners now working in Malta. The rental market has now become lucrative once again and a lot of investment is being made by people buying property in order to let it.

Malta was hardly prepared for this. Planning for it was inadequate because of a basic lack of data available. We are told that approximately 70% of the Maltese population own their own house. This is no surprise, since government policy had killed the rental market and home ownership was encouraged.

The remaining 30% or so live in rented accomodation, but the White Paper sheds no light on how many of these units are actually social housing belonging to State, the Church, or private owners who cannot recover their property. These definitely do not form part of the free rental market and so the White Paper ignores them.

This is not to mention that since the issue of the White Paper, the National Statistics Office discovered that the population is actually bigger by 20,000 more than previously thought. This is no joke and such cases of wrong data make policy decisions more dangerous.

Nevertheless, there is a substantial number of Maltese who live in accomodation provided by the free rental market and it is this sector that the White Paper rightly seeks to protect. According to one estate agent, there are some 2,000 garages that are being used as residences. Some have disputed this figure as an exaggeration but there is no doubt that this phenomenon is increasing rapidly.

On the other hand some 80% or more of people renting a residence rather than owning it are not Maltese, but foreigners living in Malta. The White Paper makes no distinction between Maltese nationals and expatriates. It follows, therefore, that the proposed rent reform will mainly benefit foreigners living in Malta who do not vote. Ironically, the political motivation behind the push for reform is the much smaller Maltese segment caught in this difficult situation – a segment, however, that is set to grow.

The administration is therefore faced with the difficult task of balancing the rights of tenants – whatever their nationality – and the landlords. At this stage the proposals are slanted more towards the tenants.

Rent regulation can be abused both by tenants and by owners, but worse of all it has been abused by the State for so many years. To be successful, a rent reform has to convince us all that the administration is determined to get out of its years-old habit of shifting its burden of social responsibility onto the small landlord.

It is definitely not the right time to ill-treat again this long-suffering citizen while the government shows off its great benevolence by giving away public land for peanuts to a select few mega-developers.

Recent changes in the law that give the right to band clubs to hang on to properties, notwithstanding court judgements ordering their eviction, have continued to exacerbate the suspicion that this government lacks the will to act in favour of landlords’ rights – albeit the fact that this law is being challenged on Constitutional grounds and may well end up in the European Court of Human Rights in Strasbourg.

This may also be the opportune moment for the government to review its policy on social housing management and to ensure that the current financial state of those who have been living for years on rents subsidized by the taxpayer, is one where such subsudy is still justified.

Most important of all, no rent regulations can be successful if defaulting tenants cannot have their lease terminated and be evicted swiftly. The White Paper says that an owner can repossess his property within 36 days. This is just academic drivel and very far from reality. If this issue is not addressed, all rent reforms will fail and landlords will never accept to fall in line with the law.

Fiddling with market forces is uncanny and caution with fairness is the only way forward.