I recently came across an article about the housing shortage in Berlin and how the municipal government has sought to address it. It challenges the orthodox thinking that governments should not intervene in the operation of the free market. It dealt with the introduction of a rent cap imposed by law on housing in the German capital city.
The initial legislation was passed this time last year and came into effect a month later. Thanks to this legislation, landlords were strictly forbidden from charging rent for existing leases that were in excess of any rent that had effectively been agreed by June 2019. At a second stage, any rents that exceeded the acceptable rent caps by more than 20 per cent – calculated according to location and the quality of the residence – had to be reduced.
As such, rents were frozen and upper limits were imposed. Landlords who did not comply with the new law faced heavy fines. This has actually led to the reduction in rents for a number of people living in Berlin.
To make it clear from the outset, I believe we need to introduce a similar measure in Malta. However, we also need to be bolder than that. The government should not only intervene in the property rental market but in the property market as a whole.
Over the years we have experienced an effort by a few people to grab as much land as they can. This is simply unethical
We need to admit that over the last years, the residential property market in Malta has become one that economists term as financialisation, speculation, and in a number of situations, even privatisation. To understand the extent to which this has happened, one only needs to assess the significant amount of funds that banks have lent to property developers, the purchase price of land and property and the level of rents charged to tenants.
Increases in incomes have not kept up with the rate of increase in the price of property. Young people and their families know full well how difficult, if not impossible, it has become to get on to the property ladder and purchase safe, habitable, adequate and affordable accommodation. The developments in the residential property market have effectively reversed all the good that was done over whole decades by successive governments for people to be the owners of their home at an affordable price.
The long and the short of it is that this situation is impacting negatively the right to a home. At a time when we speak of rights and responsibilities, this is clearly one right that we need to safeguard.
Admittedly, this is not a situation that is unique to Malta, but in a small country like ours it is easy for this to lead to market failure as, in fact, has happened. This is not to add to other social costs, such as the irreparable harm to the environment, the effect on the mental health of the population and the high level of pollution.
The introduction of the rent cap in Berlin should teach us a lesson that government intervention in the economy is not a taboo subject. We, therefore, need a proper debate when this becomes acceptable, or even necessary.
It should also teach us a lesson that we need an objective debate on land allocation in this country. Being a small island, land is indeed a very scarce resource. However, over the years we have experienced an effort by a few people to grab as much land as they can. This is simply unethical.
When we speak of land and development, very often we speak of the need for long-term planning. However, there is something more fundamental than that. How should we use the little land we have for the benefit of the common good and avoid further speculation and financialisation? This is a policy issue that any government needs to address in future.