22 June 2005

The Web

Ranting about rent

The Green Party has kickstarted its campaign to collect some 30,000 signatures asking for a referendum to be held to abrogate the 1939 rent laws and the law granting Government powers to requisition property.
Finance spokesperson Edward Fenech is confident his party will convince people to sign up. Although Alternattiva Demokratika exponents have often said that rent reform could contribute to a lowering of property prices, Fenech insists the issue is primarily one of justice.
“Changing rent laws alone will not contribute to the lowering of property prices but an increased rental market could help decelerate inflation in the property market,” Fenech says.
The spokesperson says landlords have been suffering institutionalised injustice for far too long with various Members of Parliament themselves victims of the current rent laws. Fenech insists the major political parties have refrained from tackling rent reform because they fear votes will be lost.

The Green Party gives the impression that if the rent laws are changed, property prices will go down. Where is the link between the 1939 rent laws and property prices?
The issue of rent laws has to be seen in its totality. Our drive does not come specifically or solely from this issue (property prices). The major issue is justice. There is a section of the population, we calculate around 65,000 people, who have been living this injustice for six decades. The war ended in 1945 and we are now in 2005.
This is the primary impetus that drives our campaign. Justice to landlords is imperative.
There is also another issue that can be tackled alongside the rent laws. At the latest count there are 23,000 vacant properties, which are left empty. In a country where space is the scarcest resource, the Green Party has always believed this is a luxury the country cannot afford.
People treat their vacant property just like stocks and shares or gold. This cannot continue going on forever. The free market doesn’t work because the supply is artificially restricted.
Changing rent laws alone will not contribute to the lowering of property prices but an increased rental market could help decelerate inflation in the property market. Malta has no record of property prices going down. We don’t think there are the economic credentials for property prices to plummet but there are serious reasons to believe that property prices will not continue increasing at the rate they have been increasing over the last 20 years.

What is the advantage of having a rental market?
You cannot have a complete property market without an alternative to outright purchase. Property markets in Europe and the world over consist of two sectors: property purchase and property rental.
The purchase sector is very active in Malta and this is evidenced by the high percentage of homeowners, almost 70 per cent, making it one of the highest in Europe. But we don’t have an active rental market.
We have Maltese owners reluctant to rent to Maltese residents. Until 1995 we even had lawyers discouraging Maltese landlords from renting out to fellow citizens because it was practically impossible to eject people from rented property. The 1995 amendment did change this but the fear remains.

The 1995 amendments effectively liberalised the rental market. What has stopped it from flourishing?
Fear is still a major factor even though legally there is no basis for landlords to be scared from renting out their property to Maltese people. Landlords are still scared that when push comes to shove it will still be difficult to eject tenants.
But there are other reasons why people don’t rent their properties. They probably calculate that the capital gain they would make on a property increasing in value will be higher than the actual rent one might receive. It is a hassle-free investment. People have been very reluctant to rent for this reason.
In no way are we saying that the liberalisation of rent laws is the be-all and end-all to kick-start the rental market but it can start to promote a culture change towards rent. It’s easy to assume that the culture of owning a property is deep-rooted but it hasn’t been like that forever. Till the end of the war the rental market was very active. We are not saying that people should go back to renting property. All we are saying is that people should have a choice.
The result of having 23,000 vacant properties is reflected in our degraded environment. Our urban centres are degenerating. Look at Valletta, the wooden balconies, apertures and facades of old buildings are being left to rot. This is a cost we have to pay for not having an active rental market. Vacant property owners will simply allow their buildings to deteriorate.

If Alternattiva Demokratika’s referendum proposal does pass, what guarantee do you have that aggrieved landowners will then put their ‘liberated’ properties on the rental market?
If rent laws are liberalised and there is a law that protects landowners’ rights, there is no reason why they shouldn’t put their properties up for rent. But to stimulate the market there has to be a cost for capriciously keeping a property empty.

Are you suggesting a property tax?
Call it what you may. What we would probably arrive to is a tax that would be paid if the property is left empty. People are shocked when you talk of such taxes. But let me give you a comparison: in this country it is not possible to own a television set without incurring a burden. A TV licence costs Lm15. But a person can own millions in property and not incur one single fiscal burden even if these are kept empty. We do not have serious laws that ensure people look after their property, even if they are kept empty.
Nobody bothers if houses become derelict. Local councils and MEPA have no authority to oblige people to maintain their property so I cannot understand why people are surprised when we advocate a tax on vacant property.
Urban centres in places like Croatia have strict regulations on how to maintain their property and Malta should follow suit.

Added costs on the construction industry such as a tax on vacant dwellings could contribute to further increases in the price of property…
We need to ask the big question: how much new housing stock do we need? If 23,000 homes are vacant do we need new housing stock? Why doesn’t Government have a serious policy to encourage people to purchase these dwellings, refurbish them and live in them? Do we necessarily have to go on eating more of the countryside each year?
Apart from the environmental cost of this situation we are also living in a country that is extremely shabby. The tourism sector is crying out for something to be done.
If one were to take a stroll in Sliema today, it is full of dust, construction sites and noise. These are costs we don’t calculate. As residents we probably got used to these situations but a tourist would cringe. One bad experience is all it takes for that tourist to badmouth the country.
I was in a hotel recently, with a construction site adjacent to the building. Tourists were complaining one after another about the noise of a jackhammer. There is a cost to all this disturbance.
Do we need to go on this big drive to build more flats? This country is full of flats, most of them are empty. We are not saying MEPA should stop the construction of new apartments but something must be done about the 23,000 vacant dwellings before embarking on a construction spree.

Wouldn’t such a position stifle the construction industry, which year after year is considered to be a prime economic mover?
Let’s put the construction industry into perspective because Malta thrives on a number of economic myths such as the one repeated ad nauseam by the Prime Minister that the economy is performing well because deposits in the banks are going up.
The construction industry carries another myth. A report issued by the Building Industry Consultative Council (BICC), which is the lobby group for the construction industry, shows that the contribution of the building industry towards GDP is 3.2 per cent.
People are shocked by this figure. Agriculture contributes 2.7 per cent to the GDP.
The problem with the construction industry is that it is very visible. It is true that it employs around 5,000 people but construction is not just about putting bricks on each other, it also includes refurbishment works. The construction industry should not stop functioning but it has to diversify its portfolio. We are not against properties in already built up areas being dropped and rebuilt, what concerns us is the take-up of virgin land for building purposes.
It is ridiculous walking down a street in Sliema with 80 per cent of houses being vacant. This is a wasted resource. And why are they vacant? Because of antiquated rent laws and because there are no regulations that stipulate a minimum standard for maintaining a property.

The Green Party talks of social justice for the landlords. But what you are proposing risks putting elderly persons who have been paying extremely low rents for practically all their lives, at the mercy of landlords. These people risk being thrown out on the street once the laws are changed. How does this equate with social justice?
We must define social justice because this is another abused word in the Maltese political lexicon. Social justice is about social distribution primarily. It is totally unacceptable, not only from a Green Party viewpoint but also from the viewpoint of any political party, for the state to abrogate its social responsibilities. People who need social housing need to knock on the door of the government. People who need a subsidy to be able to live in a house because their income is not enough, in normal countries, knock on the doors of Government and they are awarded social housing. For decades we have had a system whereby people were seeking social justice from the people who owned the property they were living in.
There will be a scaremongering campaign saying AD wants to throw people out of their property. At this point we are not proposing how the new law should look but we will definitely not advocate that a 65-year-old widow be thrown out in the street.
The traditional political parties are scared to touch on this subject out of fear of losing a couple hundred of votes. But it is a myth to say that people living in these houses are all poor. This is false. There are very rich and influential businesses men living in similar dwellings and paying ridiculous amounts of rent every year.
I’ve heard various stories of landlords who have building contractors living in their property. The least we can do is remove these anomalies which have created a reverse Robin Hood situation.
Another issue that needs to be tackled is inheritance because these properties can be inherited from one family member to another preventing the landowner from reclaiming his own property back.

Wouldn’t it have been easier to tackle the issue of inheritance on its own?
It would be absolutely ridiculous to hold a referendum to remove inheritance. Everybody knows it’s wrong.

How would the commercial sector benefit from rent liberalisation?
A statement that is often floated about is ‘level playing’. The current situation gives rise to anything but a level playing field in the commercial sector. One can find in the same street a businessman paying Lm50,000 a year in rent for his shop while the person next door pays Lm1,000 a year in rent for a shop acquired or inherited and controlled by the pre-war rent laws. Rent liberalisation will have to occur for the commercial sector as well.
One can understand the subsidisation of a widow, who cannot afford market prices for rent but why should anybody subsidise commercial entities?

Will the Green Party’s campaign lead to a referendum or is it an issue that will eventually fizzle out?
We are not bluffing. We are going ahead to do what needs to be done. The Referendum Act states that we have to collect the signatures of 10 per cent of registered voters, which amounts to around 30,000 people. We are going to collect these signatures
In the meantime we have to see how Government is going to react. We announced the referendum idea back in November and have for the past several months studied what needs to be done. At the time Government had said it was studying the issue and promised a report on rent reform by June this year.
The campaign is happening now not coincidentally, there are strategic reasons why it is happening now. If Government goes ahead and implements the reform it will be all well and good. A referendum could potentially cost the country Lm1 million to organise. But we have no qualms to get the country to spend Lm1 million because it would liberate Lm8 billion worth of property.
Justice needs to be done with landlords, not at the expense of throwing people out in the road but at the expense of getting Government to shoulder its social responsibility towards those who cannot afford to rent or purchase at market prices.
I have heard of a case where a landlord receives a chicken and an offering for a mass as rent. The situation is ridiculous because the tenant owns a boat and earns more than the landlord but any extraordinary expense made in the house would have to be financed by the landlord.

Why should people support such a campaign?
We are going to need a turn out of 50 per cent at least. There are a lot of reasons why people should support this initiative even though they are not directly affected. The first reason is something called solidarity. This is a word the Maltese seem to have forgotten. On Saturday I had people coming up to me who had to sell their property for a pittance to avoid incurring further costs but who expressed their support for those landlords still suffering an injustice.
There is the wider context of why people should support this referendum. It will help kick-start a change in culture on how we look at property. Many times people are foolishly happy with owning a property because prices are going up and they feel they are rich.
We are trying to bring back some sanity in the property market. A three-bedroom flat, which today is considered to be a luxury, used to cost between six to seven times more than the minimum wage back in 1985. Today it costs 27 times more than the minimum wage. Buying an apartment today is extremely difficult for low-income earners.
This is an untenable situation, more so when purchasing a property could have a negative impact on the ability of this generation and the next ones to save money for their pension. Hopefully when people understand the problem they will come round to support our position. The reform will cause change to happen gradually.

The referendum will abrogate current legislation and create a vacuum. What happens then if people do vote in favour of your position?
I would be extremely shocked if Government didn’t have an alternative to the status quo. Government has to have an idea what the transition period will look like because it would be foolish going into a referendum, risk losing it and not knowing how to address the situation. Our effort is trying to force Government’s hand to do what it knows needs to be done.
The two-party system with just a few thousand votes separating both major parties means that this injustice will continue perpetuating itself. There are Members of Parliament on both sides of the House who are suffering because of the 1939 rent laws and yet they remain silent.
We will be asking each and every Member of Parliament to sign the petition asking for the referendum to be held. In this way we will be challenging them to declare their position. We need to know whether our politicians feel solidarity with people who have been suffering an injustice for generations.

Edward Fenech was interviewed
by Kurt Sansone

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