The rent question
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The rent question

A rent reform would need to create a balance between tenants and property owners.

A rent reform would need to create a balance between tenants and property owners.

Last week we had the decision of the Constitutional Court, where­by the current legal regime regulating rents of properties leased before June 1995 was declared as breaching landlords’ fundamental rights. In response to this the Malta Developers Association asked the government to establish a new permanent rent regime applicable for all rented property to be introduced in stages during a reasonable transitional period.

I have always felt that court sentences are to be accepted and not to be commented upon. Therefore my contribution this week is indeed triggered by the decision of the Constitutional Court, but is a reflection on a number of considerations that need to be made once there will be (as there will have to be) a change in rent laws.

We can start with the present. Rents are increasing. All one needs to do is speak with non-Maltese people working in Malta. Rent easily absorbs half their take-home salary. This is leading to an upward push of salaries. Non-Maltese workers are increasingly asking for higher salaries to be able to afford a decent quality of life.

What this is doing to Maltese businesses is also easy to understand. They are gradually losing their competitiveness, as many of them simply cannot afford to give such increases in salaries.

We will reap the benefits or suffer the consequences of any rent reform for decades to come

It is easy to make reference to iGaming companies and financial services companies as businesses that can afford such salaries. However, we need to keep in mind that most non-Maltese people working in Malta do not work with iGaming companies and financial services companies, which are recognised to be in a league of their own in terms of the salaries they pay.

So let us not kill one of the geese that are laying the golden eggs for our economy.

The second consideration is about young Maltese couples. Average property prices have not been keeping up with the average increase in salaries for a number of years. Current property prices are out of reach for a significant part of the Maltese working population. If anyone is in doubt, I invite that person to ask young Maltese couples who have a job that is earning them a salary close to the average salary in Malta of around €18,500.

I also ask that person to speak with the parents of such couples who have had to give up their life’s savings to help their children to get on to the property ladder. This will eventually have repercussions once these parents reach a certain age and find out that they no longer have the money they would have saved for the rainy day.

Those who cannot afford to buy property have had to rent. The extent to which this is sustainable is doubtful. If rent prices rise even further, the situation will certainly (no longer doubtful) not be economically sustainable. The third consideration that needs to be made is about the evolution of rents in the last eight decades or so.  Prior to the 1940s couples who got married would very often rent a property. The proportion of the rent paid to the income earned was high, not far from the levels we have today. It needs to be remembered that at the time it was very often a single-income family not a double-income family.

This situation persisted to the 1960s. It needs to be remembered that in the late 1960s Malta was experiencing an acute housing shortage. So property owners who today are stuck with tenants who are paying them a pittance, given today’s income and today’s property prices, should remember the capital growth they have had and the rent they were charging years ago, compared to the initial investment made. The return would not be as small as they make it out to be.

On the other hand, a rent reform is required, and such a rent reform would need to create a balance between tenants and property owners. Rent reform should not be seen as yet another easy way for speculators to make money. So it is a real headache for the government.

We will reap the benefits or suffer the consequences of any rent reform for decades to come. Therefore it is an area where the common good needs to prevail. The rent question cannot be subject to any lobbying by certain segments of society and needs to achieve national consensus as much as possible.

With these considerations in mind, the rent question does not have an easy answer.

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