Cover Image
close this bookSupport Measures to Promote Rental Housing for Low-Income Groups (HABITAT, 1993, 132 p.)
close this folderII. THE EFFECTS OF LEGISLATIVE AND POLICY INTERVENTION
View the documentA. Rent-control legislation
View the documentB. Effectiveness of rental laws in controlling rent levels and evictions
View the documentC. Legislation and the needs of low-income groups
View the documentD. Planning and zoning regulations affecting production of rental housing
View the documentE. Different forms of legislation affecting provision of rental housing in different cities

B. Effectiveness of rental laws in controlling rent levels and evictions

It is clear that few landlords or tenants fully understand the rent-control regulations even in developed countries (Malpezzi and Ball, 1991). In most developing countries, whole swathes of rental housing tend to be excluded from the regulations, notably those in the self-help housing areas. Since many of these areas exist outside the formal embrace of the law, insofar as they lack title deeds or planning permission, it is not surprising that they should be ignorant of much of the rent-control legislation. Nonetheless, not knowing the full details of the regulations is not the same thing as total ignorance. In many cities, rent controls work partially. Some landlords know the regulations whereas others do not. Some tenants are aware of the rules but others not. Some landlords and tenants comply with the regulations, others evade them.

Generally, rent controls seem to be implemented effectively only in countries with socialist regimes. In China and Cuba, controls cover every kind of property and seem to be applied fully. Elsewhere controls seem to have worked in certain areas of Bangalore, Buenos Aires, Harare, Kumasi, Mexico City, Mombasa, Rabat and SPaulo (Ghai and MacAuslan, 1970; Keles and Kano, 1987; Kowarick and Bonduki, 1977; Malpezzi and Ball, 1991; Rakodi, 1989; Rivas, 1977; Tipple, 1988). In most third-world cities, including those just mentioned, rent controls do not seem to have worked in the informal housing areas. The lack of legal rental contracts in most self-help rental housing is a clear sign of this. Recent research has shown that few Latin American tenants are issued with contracts (Jaramillo, 1985; Gilbert and Varley, 1991; Gilbert, 1993).

Even where the law is applied with some effectiveness, there are many ways in which landlords can escape the rent-control legislation. One is through “key money” whereby landlords compensate for low monthly rents by demanding a high initial payment from the tenant before occupation. “Key money” is a well-known feature of rental housing markets in Egypt and now increasingly in Kumasi (Abt Associates, 1982; Feiler, 1990; Serageldin, 1993; Tipple, 1988). Sophisticated advances on the system of “key money” have developed in Bolivia and in the Republic of Korea where it effectively substitutes for the payment of rent. The Bolivian anticrco and Korean chonsei contracts both consist of a lump-sum payment which the landlord returns at the end of the contract period (Beijaard, 1992; Green, 1988; Kim, 1992; Renaud, 1989). The owner invests the deposit. The tenant pays no monthly rent and the deposit is fully refunded at the end of the contract period, usually a minimum of one year. The system became popular in both countries as a way to circumvent rent-control measures and restrictions on the eviction of renters.

In the three case-study countries, there is plenty of evidence of landlords avoiding the effects of the rent-control legislation although the degree of evasion varies considerably between the three.

In Nigeria, the rent-control legislation has been almost totally ignored since the early 1980s and did not work very well even when it was supposedly being applied. In fact, Okpala (1985) claims that rents were higher than decreed levels two years after the introduction of the rent controls. Ozo (1993: 50) goes even further and argues that landlords raised rents above what they would otherwise have been, “to impress on government the futility of promulgating a decree which it is not capable of implementing.” Whether or not that claim is justified it is clear that tenants were in no position to protest about non-compliance. As Ozo (1993: 12) puts it:

“most tenants under the condition of acute housing shortage, for fear of being evicted, colluded with landlords in black market transactions about controlled rents. As a result only a tiny minority of cases were ever reported.”

Even when the law was working its “implementation was haphazard and very limited in coverage.” For the last 10 years the act has been more or less moribund. Today, “most landlords act outside the provisions of the law.”

The record is little better in terms of implementation of the controls over eviction. Less than 5 per cent of landlords and many fewer tenants have used the courts to evict tenants (Ozo, 1993: 11) and most tenants simply leave when asked to. The essence of the problem for the landlord seems to be that there are too few courts and, therefore, cases take a long time to resolve. “As a result, landlords do not have the patience to seek possession under the Recovery of Premises Act” (Ozo, 1993: 12). In the case of the tenants, there is another reason; their weak position vis-is their landlords. They are afraid of losing their accommodation and of not getting other accommodation when other landlords hear that they have complained to the authorities (Ozo, 1993: 55).

In India, the regulations work a little more effectively although most landlords still fail to comply with the Rent Control Act. In fact, this has been a longstanding problem. NIUA (1989a: 15) reports on a study of 1968 which found that only 10-12 per cent of tenants in Delhi were affected by the Rent Control Act. Today, the situation is little better. As NIUA (1989a: 153) note: “a large part of Delhi’s rental housing market lies outside the purview of the Rent Control Act. Another significant part of this market does not conform to all the provisions of the Act.” This is demonstrated by Wadhva (1993: 31) who notes that “most of the landlords and tenants are unaware of the rent control act and even if they are aware are not fully conversant” with its provisions. In Delhi, for example, Wadhva’s (1993: 31) survey reveals that few landlords use the rent-fixing machinery laid down by the Rent Control Act and 85 per cent of rents had been raised after a couple of years despite the Act. In the informal housing sector, the Act is even less effective: “the rent control act has minimal impact on rents and new construction” (Wadhva, 1993: 73). “Of the 390 premises surveyed in Delhi, the rent was fixed by the Controller only in 38 cases” (p. 82). Landlords protect themselves from the risk of the tenant approaching the Court to establish a standard rent, either by charging “key money” or by demanding a deposit on a returnable or non-returnable basis. The survey found that deposits are charged in 47 per cent of cases. Not surprisingly, few receipts are given for this payment. In the 25 per cent of cases where receipts are given for the monthly payment of rent, the correct amount is written in only 45 per cent of the cases. In 5 per cent of cases it is for a higher amount (so that the tenant can charge his or her employer) and in the remaining half, lower amounts. As a farther sign of non-compliance with the Act, 77 per cent of landlords raise the rent every year, 6 per cent twice a year (p. 83).

The Act does not seem to work much more effectively in terms of controlling evictions. Landlords do not use the Act to evict because of the strictness with which the courts interpret the rules protecting the tenant. There is also the problem of time; the lengthy court procedures discourage most landlord from going to court. As a result,

“forced evictions for non-payment of rent or for any other reason are the rule rather than the exception. In many cases tenants vacate on their own rather than protest or seek redressal under law” (Wadhva, 1993: 34).

The expense of the legal system is too great for the poor to use it.

Only in Egypt, among the three case-study countries, does the rent-control legislation seem to work at all widely. Certainly, Serageldin’s (1993) survey of 100 Cairo landlords, found that 95 per cent issued contracts, 70 per cent had never raised the rent and 99 per cent had not evicted a tenant in the last year. However, as Malpezzi and Ball (1991: 73) note

“key money is a well embedded feature of the market. Side payments account for almost as much imputed landlord revenue as rents there; and for recent tenants, they account for the majority of the revenue.”

Formal-sector landlords also protect themselves by renting to relatives or friends; 63 per cent of the landlords surveyed by Serageldin do this. In the informal housing areas, however, rent-control does not seem to work at all. Landlords do not issue contracts, they levy “key money” and they charge the free-market rent. The chief reason for the lack of implementation in the self-help areas is the Government’s reluctance to admit that such areas exist.1 It has to recognize these areas before it can apply rent controls on the landlords.

1 It has tried for many years to protect agricultural land from the incursions of self-help housing.