The recent NSO survey on rent prices has confirmed a phenomenon that had already been perceived by many. A sudden surge in demand for rental properties, which led to a vertiginous upswing in the asking prices of rents, has exposed the perils of an entirely unregulated sector, one that has been perennially misunderstood by the local legislator.
These past few years have seen two main developments. First of all, substantially higher rates of return have reignited the interest in investment among current as well as prospective landlords. At the other end of the market, the influx of high-to-medium income individuals has challenged the notion that tenants are necessarily people who are unable to cross the threshold of home ownership.
The role of the private rental sector within the entire housing sphere is therefore changing as it has come to signify much more than a mere residual form of tenure.
At the heart of this private rental quandary lies the fact that renting is unable to constitute a real medium- to potentially long-term housing alternative. This situation acquires particular significance given the fact that the only two other options for local residents are ownership or social housing.
Malta must look towards a new conception of the private rental sector wherein renting is not a second-class tenure
The arguments in favour of increased regulation in the private rental sector are gaining strength although these are met by a justifiable degree of scepticism. Malta’s past attempts at regulating the private rental sector have, in fact, been close to calamitous, with the State shifting the burden of social housing (a function that belongs intrinsically to the State) onto the private sector.
The result of this injustice, from which several landlords are still suffering to this very day, has diffused the notion that a minimal State intervention would push the market into an instant paralysis.
This is not necessarily the case. The Maltese experience was particularly adverse since measures that were certainly justified at the time of their enactment were made to far outlive the timeframe within which they may have been considered legitimate.
Thus, other than the rigour of these mechanisms – which practically froze rents and gave tenants and their successors the right to remain in occupation of the property indefinitely – it is successive administrations’ culpable lethargy that led to the appalling discrepancies between controlled rents and free market prices.
Rent stabilisation measures are, in fact, used to good effect in various countries around Europe. Controls have evolved beyond the capping of initial rents and seek, generally, to limit rent increases to within a set number of years (in Germany, for instance, increases cannot exceed 20 per cent over three years).
Such measures have not discouraged landlords’ participation in the market, on the other hand they render the sector more professional as yields can be foreseen in advance. Most of all, however, this also renders future rent increases predictable for tenants, allowing them to plan ahead and to, ultimately, consider renting as a true housing solution.
Malta must, therefore, look towards a new conception of the private rental sector wherein renting is not a second-class tenure. The law must delineate a framework within which negotiations between landlords and tenants should be conducted, thus promoting longer-term investment in the market as against the present mentality of quick capital gains.
Moreover, it is in such a carefully regulated context that private leases could become truly functional and that government could administer subsidies more efficiently, rather than itself contribute to the uncontrollable inflation of prices.
Talks about future regulation of the market should not, therefore, be superficially brushed off on the basis that State intervention is anachronistic or dysfunctional. With the current pressure that is being absorbed by the sector, the government must seek to gather a better understanding of the market and explore solutions that could foster investment while ensuring equitable conditions for tenants.
We are, after all, talking about homes.
Kurt Xerri is a lawyer and a housing researcher.