Rent is a double-edged sword

Statistics released this week indicate that the sky-rocketing of rental prices represents a double-edged sword for the Maltese economy.

On one hand, it is obvious that rent income is benefiting a broader spectrum of homeowners than one might think. Households made €85.8 million last year by renting out property, according to data released last week by the National Statistics Office. There can be no doubt that for many middle-income families – and not just land-owners or property barons – the increase in revenue has translated into a significant increase in the standard of living, with knock-on effects for the economy as a whole.

An analysis carried out by MaltaToday showed that in the three years between 2014 and 2017, households experienced an increase of 132% in income derived from rents. In contrast, household income derived from employment rose by 17% during the same period and income from interest and dividends increased by a measly 3%.

Rental income made up just 1.5% of all household income in 2017, but even here it constituted a higher portion than it did three years earlier. In 2014, with rental income recorded at €36.9 million, this source of funds accounted for just 0.8% of all income for households.

This is proving a god-send for these owners who now earn much more through rent than they do in monthly salary at their full-time employment.

There is, however, a flipside. Economists have pointed point out the irony that the very same growing foreign labour force that is contributing to higher rents because of increased demand, is also keeping wage-growth depressed. The idea that all the foreigners that work in Malta are renting luxury properties is clearly flawed. Most foreigners who live and work in Malta are actually living on a very low budget.

Italians – who make up the largest nationality bloc of foreigners in Malta – tend to live in poor conditions, very often with whole families living in single-unit apartments. The outlook becomes bleaker still for third-country nationals – often hailing from poor countries in Asia or Africa – employed at the lowest echelons of the economic ladder.

The fact that it is mostly foreigners who are most at risk of abuse in the rental system, should not lead us to turn a blind eye to any abuse or irregularities.

Meanwhile, the stark increase in rent across the board is also increasingly exposing even higher-salaried employees – foreign or local – to the risk of poverty. The bandwidth of people who simply can’t afford the prices demanded by the market is growing, in step with the widening gap between wage-growth and inflation.

This is worrying, as Malta has traditionally cocooned itself from the realities of mass-poverty faced by many otherwise ‘prosperous’ cities and countries. This has in part been achieved by constant investment in social services, and in part through direct intervention in the rental market itself.

Though unfashionable in a free-market economy age, the idea of setting limits of rental increases made sense in post-war Malta, when material poverty was much greater than it is today. It could have been better regulated, granted: in practice, ground-rent remained fixed at post-war prices for over 50 years. Removing those restrictions was necessary, even to rectify injustices suffered by landlords for decades.

But the removal of any form of control can be seen to entail social risks. Anti-poverty campaigners have been clamouring for government action to apply the brakes on the rental market because the increases were out-pricing poor families. But successive administrations have been reluctant to take heed: no doubt dazzled by the short-term economic benefits, but possibly also buoyed by the fact that public concern on rising rents does not appear to be widespread.

Surveys on concerns carried out by MaltaToday have not featured rising rents as a top concern. Despite the vociferous objections of the few, it seems the many are content with the system as it is. This could possibly be explained by the fact that the vast majority of Maltese are homeowners and it would appear now, they are also profiting from a newly-discovered rental market.

But the fact that more people are reaping benefits of rental property market, does not mean that government should close one – or both – eyes to any irregularities. The current situation is giving rise to social inequality on a scale arguably not registered since the decades following the war. This should surely be of concern, especially to a government committed to ‘distributing wealth’.

In October 2017, the government promised a white paper on affordable rent. Much of the emphasis was on widening the threshold for rent subsidies, and also measures to prevent abuse by landlords and tenants alike. The white paper should have served as a platform for a national debate, possibly resulting in a new rent law reform, but so far it has not materialised. One must question why.

Other questions remain unanswered. Was all money derived from the 132% increase declared? Are the authorities working to ensure that all taxes are being paid and that all regulations are being followed?

Given the speed at which Malta’s economy is growing, these are not questions that can be postponed much longer.