Rent law reform is needed

A good first step in improving Lebanon’s housing

Buildings under the old rent law stand next to new competition.
Buildings under the old rent law stand next to new competition.

President Michel Sleiman announced he would not sign the rent law on May 7, 2014. The following leader appeared in Executive’s print edition on May 1.

Last month, Lebanon’s Parliament almost consigned to history one of the country’s most archaic laws. The old rent law artificially holds down the rents of tens of thousands of tenants across the country at astronomically low levels. In central Beirut, for example, thousands of families pay less than $100 a month for flats in prime areas. Similar-sized apartments not under rental protection can cost 10 times that (see article “Rumble in the urban jungle“).

While this may be a huge benefit for those residents, it is deeply unfair to the owners of the buildings who see their properties waste away, unable to charge market rates. Yet the issue is more than merely a battle of tenant versus landlord.

At a macro level, the old rent system has distorted the market and stifled movement. No self-interested tenant under an old rental contract could be motivated to move into a newer, non price-controlled rental unit because no gain in ambiance and building quality could adequately compensate for exponentially higher prices. This means that those outside the system have had their options reduced, thus inflating prices. Anyone moving to Beirut or leaving their parental home and seeking to rent in the city faces a market with next to no choice of affordable flats.

Many of the old rent buildings have inevitably fallen into disrepair. Tenants have no motivation to invest in upgrading the apartments they inhabit and building owners have no incentive to invest in refurbishment and structural upkeep of the non-income-producing buildings. This conundrum was perhaps most tragically illustrated in early 2012 when an old rent building collapsed in the Ashrafieh region of Beirut, killing at least 25. The landlord of the building had long feared it was structurally unsound, but with almost no revenue from tenants he merely allowed it to deteriorate.

While the liberalization of rents will not necessarily lead to a fairer system for all, the status quo is rapidly deteriorating. As such, the decision by Parliament to pass the rent liberalization law should be welcomed. While the exact details are still not clear, the new system will gradually ease rents up to market-based rates over five years.

The new law still awaits the signature of President Michel Sleiman. Those opposed to it have raised legitimate concerns that must be dealt with. It is key that issues such as arbitration and valuation need to be addressed in a way that does not disadvantage either side. Likewise the fund that will be established to aid those faced with increased rents must be set up quickly and in a transparent fashion. But reservations do not justify inaction. So far Sleiman has kicked the decision into the long grass, calling for further debate. The Lebanese Constitution gives him just 15 days to either accept or reject the bill, but he has already passed that deadline. He should not procrastinate any longer.

More fundamentally, the new law will not be successful in isolation. It needs to be coupled with a new approach to developing Lebanon’s cities, including a much-needed urban planning law, which should include incentives for the development of affordable housing.

The country’s real estate sector is hopelessly unregulated. This new law must be the start of fundamental change, not another stopgap.

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