Rent heart

The green campaign on rent law reform has had the effect of bringing the government to go through the motions. At the opening of Parliament following the 2003 elections the president's speech indicated that the issue was on the government's agenda for this legislature. It was mentioned.

Later that summer I participated in an informal discussion called by the politician responsible. There were representatives of a wide range of government departments around the table and the discussion was lively and uninhibited. I was glad to say my piece focusing on the substance and without the distraction of partisan polemics. The vulnerability of tenants in coping with free market rents was carefully considered. And then nothing happened again.

My impression was that the PN had played their customary trick of defusing an issue by involving stakeholders in confidential discussions and doing nothing at all about the issue. For a number of months they gain the silence of the lambs and perhaps deprive the issue of momentum. They are excellent at making nothing happen again and again and again.

People who still bestow their deference on the PN or who are unable to contemplate any alternative to their eternal rule are easily seduced by such tokens. They want to believe that the PN is the natural party of government and that it has everything well under control.

If the future is indefinitely postponed the government must have very good reasons for it which it cannot divulge because it is not proper to do so. Perhaps it is because the government enjoys paying peanuts for some grand properties it holds as a tenant in controlled rent. Perhaps it is because the other political parties have some of their party clubs on such terms.

There is absolutely no reason for the endless procrastination on the rent reform issue other than the electoral interests of the party in government. The blatant injustice involved is perpetuated because the government is afraid to embark on a major reform because it fears electoral consequences. For people for whom keeping the PN in government is the ultimate goal in life, this is a good enough reason for doing nothing.

Doing nothing does not necessarily mean that nothing happens. Fifty or 60 years of procrastination does not freeze a situation except in the wording of the law. Since the second world war that necessitated the perversion of the rent laws, Malta, its people and its economy have been through a number of radical transformations. The rent laws have changed by remaining the same in the changing circumstances.

There is no housing shortage today. We actually have a surplus of housing today. One of every four properties lies vacant. What was defensible emergency legislation has become nothing more than a state injustice on a sector of the population. Not only are the landlords of controlled properties effectively expropriated without compensation, enormous disparities are created among workers.

While salaries are determined by the demand for one's skills in the labour market, workers on a par in earning ability are set on different planes depending whether they happen to have laid their hands on a controlled property for a joke of a rent or have to sacrifice their quality of life to pay a mortgage.

The myth that a landlord is a Scrooge sucking the lifeblood of the working class is patent nonsense. In fact it is tenants in controlled properties who indirectly and unwittingly sustain the rocketing property prices and make life impossible for their comrades. In a significant number of instances penniless landlords are subsidising millionaire tenants.

The absence of a free rental market means that property prices keep rising regardless of the surplus in supply. The small segment of uncontrolled property available for rent is distorted by tourism and short-stay tenant demand and is not a real option for permanent residents. The upwardly spiralling price of property also pushes up the rents in this small segment in a vicious circle that persuades the country that rent is not a viable option and that property prices will rise eternally.

We are all speculators. We have to be. Despite the glut of properties potentially on the market, the myth of scarcity in an overpopulated island lives on with greater tenacity than belief in the Tooth Fairy. The scarcity is created by the belief of property owners that prices will always rise and that they are better served by postponing a sale indefinitely.

Hoarding pays. Real market considerations such as maintenance costs and the deterioration of unoccupied properties are discounted because of the rapidly rising prices. It is a stampede to unsustainablity.

Just to add to the fun the government slaps on capital gains tax. Instead of dampening property prices as it was intended to do, it sent them through the roof. Vendors did not want the government to take a bite out of the price they had had in mind and simply pumped up the price to make up for the tax. They could afford to wait in confident hope that a buyer would be found. They were proved right.

The belief that this warped market mechanism is a permanent feature of Maltese reality has infiltrated government thinking to the extent that it justifies the Brussels embassy extravaganza as a good investment on the same lines. It is not an eternal and universal truth.

There was a time when tenants were offered a year's rent for free to occupy town houses in Sliema. That was in the 1920s and 1930s. It was Malta and it could happen again. It did really happen in Malta that investors built houses to rent. It happened and there was no 25 per cent property surplus as there is now. Nothing is eternal, not even Malta's property bubble.

The government does not want to hear about it. It is too much trouble to get into the intricacy of removing all the spanners in the works placed by the rent laws. It was enough that it did a patch-up job in 1995 deregulating rent agreements after that date. It just created another class of properties in the unholy chaos created by the rent laws.

Assuming that nothing will ever change, it adjusted to the situation and settled down to enjoy increased revenue from capital gains off the upward spiralling property prices. The government gave itself an interest to preserve the unsustainable and unjust status quo.

It now appears to be contemplating a step forward. Without embarking on any rent law reform it seems to be toying with the idea of taxing properties. In the Green proposal set out in our 2002 manifesto a tax on vacant properties was proposed as the final prod in the project to kick-start a rental market. Rent law reform was the premise: rented properties would be exempt from the tax which was not intended as an additional source of revenue for the government but as an administrative tool, a disincentive to property hoarding.

It is to be hoped that the government is not repeating the eco-tax fiasco and exploiting a tag to slip in another revenue generator under false pretences. The economy should come before government finances.

Creating a rental market through rent law reform is a major economic issue. It promises to give close to market prices to presently controlled properties making them available as collateral for new economic activity by landlords. Combined with a tax on vacant properties in should stabilise property prices and make other investment options more attractive.

The current situation distorts our economy by sinking billions into stone and releasing more to be sunk into more stone or splurged in ostentatious purchases to upset our balance of payments. It has stunted any investment culture related to productive economic activity other than construction. It keeps the countryside under constant threat of extinction and generates 90 per cent of our waste mountains threatening a volatile tourism sector which is supposed to be the mainstay of our economy.

The government does not see things this way. It looks forward to making more money from capital gains tax and dreads the thought that property prices will not keep rising because no such tax revenue would accrue in that case. It will waffle and dodge, hold seminars and announce studies until the bubble bursts. At that point it will find a good reason why it is not to blame for the disaster.

Today, with no study smokescreens at all, the government can announce that it will outlaw the infamous inheritance of controlled leases. It could instantly signal a definite change in course giving landlords hope of real change in real time with regard to controlled property and allowing them greater confidence to rent out uncontrolled property to Maltese citizens.

It will be necessary to have all stakeholder consultations on rent law reform to address the social issues involved. Nobody proposes to induce hardships on tenants of controlled properties who will not be able to adjust easily to free market conditions. It will take time and thought but it can be achieved.

The alternative is to have the countryside disappear, to allow a priceless architectural heritage to deteriorate beyond repair and to exacerbate the present economic distortions until the market tells us it is payback time. The outrageous injustice inflicted on landlords for decades must be discounted. They have been given a bad name and have been left to hang for decades.

The Green Party is upping the pressure on government to move on this issue and anyone willing to co-operate is welcome on board.

Dr Vassallo is chairman of Alternattiva Demokratika - the Green Party

harry.vassallo@alternattiva.org.mt