A rent reform proposal

Malta's siege during World War II led to a dangerous scarcity of everything - from food to housing. Faced with this temporary but extraordinary emergency, the authorities decided to control the price and supply of these necessities till the war was over and life returned to normal.

Victory in Europe came and went, and around 30 years later, ration cards on basic food items such as sugar and cooking oil disappeared.

Apart from the Royal Opera House, few bombed sites remain, unless one considers many '1939' properties which are in a dilapidated state since neither the landlords nor the tenants are ready to pay for much needed major repairs.

The option to rent, in many cases, does not exist and this, coupled with the sky-rocketing price of property, makes housing unaffordable for a growing number of people. Buildings have sprouted everywhere and there are thousands of empty dwellings. Despite this, Malta's war measures on rent remain in force.

Malta was not the only country where property was controlled. The Communists in the former Soviet bloc had taken over private property from the owners. Communism failed dramatically in the 1980s and property has since been returned to its rightful owners. Today, Malta's property rights are probably the most unjust in Europe. This is unacceptable to a country which values justice for all sectors of society.

Alternattiva Demokratika has launched a referendum campaign to change the 1939 rent laws. I believe that the campaign deserves support even from those of us who do not necessarily intend voting AD at election time. AD has not come up with a detailed solution to this issue, however the referendum campaign will hopefully generate further discussion and proposals. Here is mine.

Official statistics show that inflation has increased from a basis of 100 in 1946 to 665 in 2004. With an assumed inflation rate of 2.5% for the next five years the basis for 2011 is expected to be 790. Statistics for the price of property for the same period do not exist. Presently the rent on the 17,000 or so '1939 properties' is frozen. Tenants can demand that repairs be paid in full (at 2005 prices) by the landlord. Landlords can deduct 20% as a tax expense when submitting their tax forms. Tenants can in many cases effectively pass on the property to their family.

The reform will result in an increase in rent and may cause social and economic hardship to some tenants. There is therefore a need for the burden to be shifted from the landlords to a more equitable position in which the burden is shared by the landlord, the tenants and the taxpayer.

Here is my proposal: tenants will be given six months to register their residence as a Rent Controlled Dwelling (RCD) with a government agency. Registration would entitle the agency to information on the tenant's age, family members, and family members' income, including dividends, bank interests and income from part-time work, on an annual basis. Tenants may also opt out of the system, in which case the building will not remain a RCD and full rights will be restored to the landlord.

RCDs will be given a reference number and landlords will be issued with fiscal receipt books that will be used together with or instead of existing receipts.

The income tax form will be amended to include a line for rental income from RCDs and tax deductions for RCDs. This will enable the difference on tax on landlords' income tax to be easily computed before and after rental income from RCDs.

The tax collected on RCD rental income will be forwarded to a 'Rental Social Fund' (RSF) administered by the government agency. The government will acknowledge its financial responsibility by contributing an equal amount to the tax collected from RCD rental income to the RSF.

The RSF will be administered by a board to ensure that tenants who cannot afford to pay a higher rent will be financially supported. The agency will also consider the tenants' age and social conditions when distributing this social service.

Let us assume that 31,000 people sign AD's petition, the referendum takes place in 2006 and is won. Legislation follows and on January 1, 2007 the reforms kick in.

1939-2006: Rental income basis: 100. Landlord's share of repairs: 100%. Tenant's share of repairs: 0%. Landlord's taxable expense: 20%.

2007: Rental income basis: 150. Landlord's share of repairs: 10%. Tenant's share of repairs: 90%. Landlord's taxable expense: 2%.

2008: Rental income basis: 230. Landlord's share of repairs: 20%. Tenant's share of repairs: 80%. Landlord's taxable expense: 4%.

2009: Rental income basis: 350. Landlord's share of repairs: 30%. Tenant's share of repairs: 70%. Landlord's taxable expense: 6%.

2010: Rental income basis: 525. Landlord's share of repairs: 40%. Tenant's share of repairs: 60%. Landlord's taxable expense: 8%.

2011: Rental income basis: 790. Landlord's share of repairs: 50%. Tenant's share of repairs: 50%. Landlord's taxable expense: 10%.

2012-2016: Rental income basis: higher of a) previous year basis + inflation rate for previous year or b) one-twelfth of tenant's household income. Landlord's share of repairs: 50%. Tenant's share of repairs: 50%. Landlord's taxable expense: 10%.

2017-2026: If, in 2017, the tenant or his/her dependant reaches 60 years of age then the landlord, during the period 2017-2026 and after giving six months' notice, can pay the tenant a sum equal to the value of an average two-bedroom flat in the same location to vacate the property. If, in 2017, the tenant or his/her dependant does not reach 60 years of age then the full rights of the property revert to the landlord. The property is no longer considered a RCD in both cases.

If the property remains listed as a RCD then the rental basis will be the higher of a) previous year basis + inflation rate for previous year or b) one-tenth of tenant's household income. Landlord's share of repairs: 50%. Tenant's share of repairs: 50%. Landlord's taxable expense: 10%.

2027. The RCD classification is removed on properties remaining in the system and after 88 years, full property rights revert to the landlord.