|Support Measures to Promote Rental Housing for Low-Income Groups (HABITAT, 1993, 132 p.)|
|II. THE EFFECTS OF LEGISLATIVE AND POLICY INTERVENTION|
In principle, rent controls are intended as a means of protecting weaker groups against the ravages of inflation and/or exploitation by landlords. Rent-control legislation is normally premised on the assumption that landlords are affluent and tenants are poor. For this reason many countries have excluded expensive property from the controls and limited it to lower-value property. In India, state rent-control laws always include low-income property but sometimes exempt high-priced accommodation.
A basic problem with rent controls is that the benefits are never transparent and are rarely wholly predictable. It is certainly not always clear whether the poor benefit. Among the tenants, some poor families benefit but others lose out; some affluent tenant families also gain. Among the landlords, some rich ones suffer but so also do some poor ones. As a result, there is no clear link between those who benefit and those who most need help. In Bangalore, for example, Malpezzi and Tewari (1990) found that Bangalore, for example, Malpezzi and Tewari (1990) found that there was no simple relationship between income and the benefits derived from rent controls.
Rent controls also tend to favour sitting tenants over new tenants. As Malpezzi and Ball (1991: 71) put it: often, long term tenants tend to benefit from controls, and recent movers often pay large key money, advance rent, or other side payments. In Mexico City, long-established controls in the central areas of the city used to mean that tenant families paid extremely low rents; by contrast, the majority of the population were not covered by the rent controls (Aaron, 1966). Similarly, in Cairo, Malpezzi (1986) found that while new entrants paid large sums in key money, existing tenants were paying very little of their income in rent. In India, where the Rent Control Act also favours sitting tenants, new entrants into the housing market lose out (Wadhva, 1993).
Poor tenants may also suffer in the longer term if landlords respond to rent controls by failing to maintain the property. In Guadalajara and Puebla, many tenants have given up complaining about the lack of repairs because landlords simply do nothing. Four-fifths of the tenants who had complained about the need for repairs reported that the landlord had taken no action (Gilbert and Varley, 1991: 172-173). In the central areas of these cities, landlords protest that the cost of repairs is far too high to contemplate given the low rents paid by the tenants. In Cairo, however, it appears that maintenance of formal-sector accommodation may not have suffered unduly despite the oppressive rent controls. As Abt Associates (1982: 208) point out: residents of rent controlled properties often assume the financial burden of maintenance themselves, at least for their own units, spending on average a sizeable fraction of income for this purpose.
A further long-term effect of rent controls is that the rental supply is reduced. As Wadhva (1993: 71) puts the argument in the case of India:
the impact of low rents on rental housing construction is evident from the rental housing market. This provision has driven away even the public agencies. Even though rents are not controlled in houses owned by the public agencies, the application of the Rent Control Act in the market has created a psychology of fixedness of rent which has permeated the tenants of public agencies who resist any rent increases vociferously and violently.
However, again Egypt provides some counter evidence. In Cairo, rent control does not appear to have had a major effect on rates of new construction... rental units are still being produced (Abt Associates, 1982: 208).
Perhaps the greatest problem with rent-control legislation, however, is that it is often not applied in just those areas where most of the poor live. As Section II.B has shown, most legislation simply does not work, or works only partially, in the self-help areas of most Latin American cities where the majority of poor tenants are now concentrated. In these areas, neither landlords nor tenants really know much about the law.
Even if poor landlords and tenants were aware of the law, the high cost of using the courts would deter them from taking legal action. They simply could not afford legal advice and without such help they would be unable to cope with the complicated procedures. As Ozo (1993: 16) explains for the case of Nigeria,
the technical/legalistic language and cumbersome procedure of the law, the monetary and time cost of court procedures under the law, the burden placed on tenants to report infringement to courts before erring landlords can be identified, etc. make the law particularly unsuitable to low-income groups who are also quite often illiterate.
In his survey in Benin City, he found that the only tenants who have used the courts have been literate and from the middle class. As a result, In spite of the intention of the law, the low-income groups have had little, or no, protection from it (p. 17). Still worse is the fact that the law is sometimes improperly used against them; it has been known for wealthier landlords to coerce tenants into leaving the premises by getting lawyers to send them letters.
If rent controls have had little effect on the living standards of the poor, so too have other kinds of government intervention. Generally, and perhaps fortunately, zoning laws are ignored in the self-help housing areas. Public housing construction has provided homes for very few poor families and in recent years, none in rental accommodation. Attempts at encouraging the development of a housing-finance system have brought benefits entirely to higher income groups.