Research firm assails rent control in Middle East (page 2 of 2)

There is also an incentive for landlords to discriminate against tenants likely to stay for a long time, like retirees or couples with children.

In some countries, landlords collect key money to offset the losses occasioned by rent control.
Rent control tends to lead to bullying and illegal behaviour by landlords.

If rent increases are allowed between vacancies, landlords will try to evict tenants in any way possible. This will likely translate into demands for government protection for tenants, i.e., into a further layer of bureaucracy and policing.

Tenants in tenancy rent controlled units are less willing to move to other places, despite the possibility of earning higher wages.

According to a study by economists Basu and Emerson, "he removal of rent control can not only increase efficiency in the rental market, but can also lead to a general lowering of rents, making all tenants better off."

Lessons for rent control

When might rent control be desirable? Where it will help provide all parties with contractual certainty.

Global Property Guide believes that rent control can be harmless or even (in some cases) mildly beneficent, where it occurs in the context of standardization of contract structures, designed to increase market certainly and to provide guidance for citizens.

However as noted before, rent control should be minimalist.

1. The rent control scheme should be simple.

It should be easy to determine if the unit is covered by rent control or not. It is generally easier to determine if the unit is covered by rent control if the basis is the actual rent, and not property value or construction cost. Using furnished vs. unfurnished for rent control delineation can also lead to confusion.

2. The basis should be transparent.

Using the CPI or inflation as the basis for rent increases is generally desirable, because it is transparent. Most central banks and statistical agencies regularly report inflation.

Using a formula that only the rent tribunal can understand and configure creates abuse and corruption.

3. The rent control system should allow capital recovery.

The rent increase structure must allow landlords to recover their investments and certain costs. Without this basic precondition, private housing investment will grind to a halt, with all the attendant evils mentioned earlier.

4. The scheme should be predictable.

If the allowable rent increase is changed annually, then the government must announce it early to allow landlords and tenants to negotiate and evaluate their options.

5. The rent control scheme should be easy to implement and enforce.

Decisions must be easy to execute and implement. Given the cyclical nature of the rental market, prolonged litigation and eviction proceedings can lead to substantial losses for the landlord and/or immense distress to the tenant.

6. Special courts can help

The legal system is an important variable. In most countries in Europe, and countries with English common law systems, a rent tribunal or rent board hears complaints regarding rent adjustments. The decision can only be appealed to the tribunal itself. The process is usually swift and efficient.

In many other countries, on the other hand, cases related to rent adjustments are handled by generalized courts and can be appealed to the highest courts - which usually means a cumbersome and expensive process

"Qatar and UAE can learn a thing or two from Canada," says Cruz. "Although the laws appear to be pro-tenant, the system is not entirely disadvantageous to landlords. Allowable rent increases are based on each province's CPI, allowing regional disparity," he continues.

A landlord can usually petition for a rent increase above the "rent increase guidelines" set for the province. Landlords doing so have to apply to that province's rent authority. Landlord-tenant disputes are resolved by the provincial (small claims) court system, or through a tribunal/arbitration system. The system is very efficient.