Regulating the rental market

The much awaited – and long promised – White Paper on how government intends to regulate the rental market was issued last Monday.

In general, I consider it a genuine effort to control abuses without suffocating the market with excessive controls. It attempts to balance the fundamental rights of landlords, their rights to enjoy their property, and contractual freedom, with the rights and stability of tenants.

After a rather longish analysis of the current rental market situation, the White Paper indicates that its objectives are:

• the enactment of a regulatory framework capable of stabilising rents for the medium-term and guaranteeing minimum safeguards for tenants,

• the introduction of a number of measures aimed at immediately improving the functioning of the sector; and

• the development of a medium-to-longer-term strategy for an increase in the supply of affordable housing.

No one can argue with these aims, of course.

In fact, I feel that the authors of the White Paper have acknowledged the complexity of the current problems in the rental market and made proposals to attempt to overcome these problems.

As the Paper itself states, the proposed model is not intended to be a temporary or quick-fix remedy, but rather as a framework that can stabilise the sector immediately as well as in the future, without limiting its potential for further growth.

Thus, for example, definite short-term agreements would be allowed, by way of exception and only in specific circumstances. The proposed policy aims at promoting:

i) stability, through a minimum contractual term with periodical rent increases clearly stated in the agreement,

ii) predictability, through the capping of increases that might take place during the contractual term,

iii) affordability, through the optimisation of the rent subsidy scheme.

This White Paper puts forward two distinct frameworks, both aiming to promote a longer contractual duration for residential leases. The first framework proposes a mandatory minimum contractual duration whilst the second one presents a model where longer leases are promoted through fiscal incentives.

It also strongly recommends the removal of the possibility of six-month leases, which have been identified as one of the primary causes for instability in the sector.

I seriously wonder whether, in fact, this aim can be reached with the proposed alternative of establishing a minimum compulsory duration or the fiscal incentivisation of leases contracted for periods longer than one year. As long as there is a strong demand and an inadequate supply, those who are in a position to supply will always keep raising the bar.

The White Paper proposes the setting up of a public agency for private residential leases to handle all matters related to registration of contracts and enforcement.

Another important task of this agency is that of overseeing the compliance with the new regulations and ensuring that cases of abuse, by either party to the contract, are reported, investigated and addressed.

The White Paper even tries to tackle the problem of landlords using water and electricity bills to evict recalcitrant tenants by proposing a new system whereby water and electricity bills would be issued to the landlords, while ensuring that tenants will pay according to the correct tariff.

Of course, it remains to be seen whether this agency will manage to control adequately rogue landlords and unruly tenants.

The most glaring absence in the White Paper is that it lacks any indication of what penalties are involved when landlords or tenants ignore the rules, like, for example, making a tenancy ‘agreement’ or even a tacit understanding beneath the searchlight of the proposed public agency. What happens when such a case is discovered?

How will such landlords and tenants be punished while the rights of law-abiding landlords and tenants are respected? Will eviction of unruly tenants become easier – and faster?

The identification of a minimum habitability standard for rented properties is one of the issues that have been indicated as immediate goals of the new agency. How this agency will stop the renting of garages and stables for housing purposes remains to be seen. Here the law of supply and demand plays an important role and unless housing units are available to those who cannot afford to pay high rents, the phenomenon will not disappear.

Again, social housing is the prerogative of the Housing Authority. Will the Housing Authority be just another landlord as far as the new public agency is concerned? The White Paper ignores this issue altogether.

Dirty laundry

A recent leader in The Economist under the above heading says that the National Crime Agency (NCA) reckons that “many hundreds of billions of pounds” of international money are rinsed through British banks each year, much of them from kleptocrats and their cronies. Almost every big cross-border corruption case in recent years has had a connection to Britain or its palm-fringed overseas territories. British limited-liability partnerships were the vehicle of choice for suspicious clients of Danske Bank, which is embroiled in the laundering of as much as €200 billion.

The leader insists that London’s financial flows are polluted by laundered money and that while there are those who think that a big clean-up would be harmful (just when British finance risks losing its lustre because of Brexit), doing nothing to tackle dirty capital flows could further undermine the legitimacy of capitalism.

Compared to other places, London has exceptionally enticing attributes. The leader acknowledges that it handles vast cross-border capital flows.

Moreover, “it boasts the English language, good schools and, ironically, a respected legal system (which shields tycoons against the arbitrary plunder they suffer at home). Relaxed rules on ownership are geared towards rich foreigners. Armies of lawyers and public-relations firms specialise in rinsing reputations. Tough libel laws help keep prying journalists and NGOs at bay. On top of all this, Britain has its own network of secretive offshore territories, dubbed its “second empire” by anti-corruption campaigners. London is, in short, ideal for money-laundering”.

While Malta is being dubbed as some dirty ‘bète noir’ in the financial services world, the big bad wolves are in the same countries from where journalists criticising Malta come.

Quoting again from The Economist: “Britain’s response to the threat posed by illicit financial flows has so far been more thundering rhetoric than meaningful action.”

This is not to excuse any lack of action to correct flaws and inadequacies in the Maltese set-up, but rather to show that there is a lot of ‘the pot calling the kettle black’ in these foreign reports that depict Malta in the worst imaginable terms.

Did anyone say ‘hypocrisy’?