Rent reform through social justice

Controversies are a part of our Mediterranean culture. Blood runs through our veins at high temperature. Everyone recalls the statement by Dr Eddie Fenech Adami that housewives were going out to work to buy an air-conditioner for the kitchen. And the recent statements by Enemalta that power failures are due to higher demand for electricity from the use of more air-conditioners.

We, as taxpayers, wonder what happened to the strategic development plan for our energy sector; why do we have more investment in power stations when the old problems remain with us? But this is another issue.

Rent reform is said to be a controversial subject. It will remain so until the stakeholders involved understand what is at stake. The first task is to define the problem. Then we have to seek a solution.

Both tasks need to be carried through a wide consultation process, and having a strategic communications plan attached to it. Nobody should create bogus side issues.

The property market has a high correlation with our environment and hence our living standards. Every leader of the political or economic sectors or civil society wants to see all Maltese citizens having a better living standard. This should find the stakeholders united at the beginning and at the end of the reform.

Society is dynamic. What was seen as a solution in 1939 cannot be seen as a solution in 2003 and the future. We must all learn from our history but we need to challenge the past to make a better future.

If we allow the past to be our guiding instrument, our society will fall into decay and remain tied to old practices and legislation that hinder progress, development and creativity. This implies that we are losing more opportunities. The size of our resources make it our responsibility to exploit all our opportunities to maximise the value of our capabilities.

Much has been said about rent reform. But little has been done. For sure we cannot apply Tony Blair's energetic slogan: "A lot done. A lot still to do."

For our establishment is only there to sign collective agreements, handing out hefty increases to the top cream without yielding any real benefits for the whole community. A recent clear example is the way government expenditure has exploded, notwithstanding the supposed capacity building that the civil service undertook in the recent years.

One of the issues under the current rent legislation is that tenants may keep the rented property under the same conditions since the tenant's relatives living within the same household inherit the rental contract.

This means that the rental contract becomes a perpetual contract, without any possibility to increase the rent to take inflation into account.

In cases where the landlord has been requested to undertake structural repairs, these by far exceeded the rent collected for a number of years. Under these circumstances, the property becomes a liability rather than an asset and it is for this reason that certain property has been left to decay and/or abandoned.

Since the first task of the problem-solving matrix is to identify the issues involved, we have to look at the known data. We can only make an informed, rational decision if we have the correct data. The last published data from the national census is that of 1995.

Out of a total of 119,479 households, 33,781 (28.27 per cent) are rented. This is subdivided between furnished rented property (2,957 - 2.47 per cent) and non-furnished rented properties (30,824 - 25.80 per cent).

17,343 households (51.34 per cent) out of the whole rental market enjoy a rent below Lm50 per annum. At the upper end of the rental market, 1,766 households (5.23 per cent) pay an annual rent equal to or exceeding Lm301.

It is important to point out that these figures include both private and public property. It is also pertinent to point out that under previous Labour administrations several apartments/terraced houses were rented out to families and in the recent years schemes were made for the tenants to buy their own property. It would be interesting if the data is subdivided into public and private property. These figures give us an idea of the issue in hand.

Input about public opinion was made available through the opinion poll carried out by The Sunday Times and published on June 22, 2003. The results of this opinion poll is based on the whole population and not on those involved in this issue.

I disagree that the author gives a political dimension to the analysis since this, a priori, raises the stakes without there being any real need for this. In such a polarised society, we cannot continue to resolve our long-standing issues through a blue-red matrix. This opinion poll failed to ask very important and relevant questions:

¤ How many people would be willing to rent as tenants under a liberalised rent market?

¤ How many people would be willing to provide their property for rent under a liberalised rent market?

These questions are important for our analysis. In Malta we have a high rate of owner-occupied dwellings. This might be done as a status symbol, for security reasons or as part of our family culture.

Whatever the reason, following the liberalisation of the rent market in 1995, the renting market has not expanded as it was thought will happen. Few of the Maltese know that the rent market has been liberalised since 1995 and under that legislation the owner and the tenant may enter into an agreement dispensing with the 1939 rent regulations.

I am making these statements since there are those, including some political leaders, who argue that if the 1939 rent regulations are lifted, the rent market will boom. How much of this is true and how much is a myth? To my knowledge, there is no evidence that the past eight years of rent liberalisation have resulted in any significant expansion in the property rental market.

Having no empirical information on the answers regarding these two questions, one is led to conclude that any changes to the 1939 rent regulations will only affect the current tenants/owners.

The current debate on rent reform is, then, targeted to relieve the alleged injustice of property owners who have rented property tied up as at rates below their current market value.

Given the present scenario, the solution must provide a balance between the parties and government intervention has to be based on social justice. There must be a price tag for the property owners tied to any reform programme.

On April 7, 2002 I had made a contribution on the subject in Kullhadd. This was prompted by a citizen from Mosta who wrote to the MLP requesting information on what the MLP intended to do about the current situation of property owners who have rented their properties under the 1939 regulations.

I replied that the first thing to do is to assess the situation after collecting the relevant data. I strongly believe that policy must be based on thorough research, factual data and driven by public opinion.

Obviously, he was not satisfied with my reply but we are not in the business of making people happy; that is the profession of the clowns; and clowns we are not.

Today I hold the same opinion. Based on the information available, a possible long-term solution to the issues involved could be based on the following model:

¤ The government should initiate a census of rented residential buildings through special legislative provisions: collecting data on the owners, current tenants, annual rent, annual household income, etc.

¤ Property owners would have to pay a sum of money, similar to that pertaining to the purchase of temporary leases.

¤ The funds so collected would be divided: 30 per cent to pay for the scheme's expenses; 30 per cent to set up an inner-city regeneration fund; and the other 40 per cent to be distributed to the tenants according to an index based on their personal income and rent payable. The latter part will be apportioned on the principle of social justice.

¤ The 1939 regulations would cease to apply to tenants who fail to register their rented property.

¤ As from the end of this census, only the current tenant would be recognised and under no circumstances would the rent agreement be terminated.

¤ A matrix of rent adjustments would be proposed taking into account the household income of the tenants, the current annual rent payable, and the value of money.

¤ The proposed changes would take effect after a moratorium of five years so that tenants would be given adequate notice to make their plans.

¤ The whole plan would be carried out by a private entity on behalf of the central government.

This model for a solution should be tied with an inner-city/town/village regeneration programme to attract the use of existing stocks of property and reduce the demand for new built-up areas.

The Internet is full of successful initiatives that have been applied in other countries. We can learn from these experiences without falling into the pitfalls of others. Local councils should be actively involved in such plans and development.

I also believe that such a programme may attract EU funding, and have a much higher socio-economic value than building a tunnel between the Marsa port and the Freeport. Another factor that may be considered is the introduction of fiscal incentives for property owners to put their property on the market rather than leaving their property vacant.

These reforms should be based on a planned change of environment. Each process has to be made under wide consultation within pre-defined periods. The whole reform would not take longer than a year.

This means that in a maximum of seven years we would have brought forward a socially acceptable reform plan for the rental market in Malta. This is the way forward.