Rent Laws between Control and Liberalization, and their Impacts on Urban Transformations

Source: Disturbanism

July 29, 2015

(This article is based on a presentation at the seminar: Housing Policies, Rent Control, and Property Taxation in Lebanon: Towards a Socially Just Model of Urban Development, IFI-AUB and KAS, Beirut, October 24, 2014)



Housing is at once a prime necessity and a most formidable instrument of oppression.

Argentina Supreme Court, Ercolano v. Lanteri, 136 S.C.N. 161 (1922).



A concise history of rent control

Rent control, as we know it, is a relatively modern form of regulation. The first comprehensive rent control law was enacted in the United Kingdom in 1915 during World War one. Similar legislations were also adopted through war torn Europe at the same period, and in the following two decades across the world.[1]


Countries and Territories with rent control legislations in 1947. Illustration by author.

The reasons for rent control are embedded in times of severe crisis, as in wars or economic depressions. These crises usually inflate considerably the cost of basic necessities, such as rent, food or energy. But while with the latter, buying cheaper products or adopting different ways of consumption can reduce expenses, with rent households are faced with two options: to pay more or to move out. This radical situation of rent exacerbates social tensions, and within the volatility of a crisis context, it can have severe consequences on the social, political and economic levels.[2] Therefore, rent control is an efficient tool to contain the subsequent social unrest, due to the inflation.

The various rent control legislations adopted one hundred years ago have similar guidelines, as in fixing or putting a cap on rent prices; extending rent period indefinitely; a rent contract is inherited by the spouse and children of the deceased renter; very strict conditions to terminate a contract, and so on.[3]

From the beginning, rent control laws were intended as temporary measures, but with the cycle of economic crisis and war in the first half of the twentieth century, it proved hard to be removed. Nevertheless, and since the early 1920s, rent laws passed through several decontrol or reinforcement phases, and that according to the situation in every country. For instance in 1923, rent law was relatively relaxed in the United Kingdom,[4] meanwhile in Germany, stuck in a hyperinflation, further regulations were introduced to protect tenants.[5]


A comparison of main control and de-control of rent legislations in the United Kingdom, Germany and Norway. Illustration by author.

After the Second World War, and with the relative prosperity in Western Europe, the process of easing rent laws restrictions in this area was accelerated, and parts of the rental housing sector were liberalized. However, it was not until the advent of neoliberalism[6] that total liberalization of rent began to occur, starting also in the United Kingdom and the Housing Act of 1980.[7] This process of rent liberalization has now gained most of the world, with only a handful of countries still maintaining rent control.

Impacts of rent laws on urban transformation: the case of gentrification

One of the results of rent liberalization was an increase in rent prices in city centers due to speculation, thus limiting the number of affordable housing, and driving less wealthy residents out of these areas. However, these effects were not felt as same in all cases. For such, in Norway, where a comprehensive social security system in place, liberalizing rents led to much fewer evictions,[8] and less embourgeoisement of the cities, in comparison with the UK, where the current housing crisis is still the legacy of the 1980s.[9] Hence, when addressing the consequences of this change in the laws, there is a need to consider other factors influencing the outcomes.

In fact, and when examining the impact of rent control or liberalization on certain urban transformation, such as gentrification, several contradictions -or rather similarities- arise. For instance, the British Rent Act of 1957, which liberalized the rent for the more valuable houses, led to gentrification.[10] Old Victorian houses in city centers were renovated and put on the market for higher prices. Their previous tenants were evicted, and forced to look for accommodation in the outskirts of cities.[11]

While in Berlin, gentrification since the 1990s is striving within a context of rent control. The section 559 of the German Civil Code allows rent increase after modernization measures. A close that many property owners took advantage of by keep on modernizing their properties. The resulting increases forced many tenants out of centrally located areas, such as Prenzlauer Berg. The rate of eviction, and renovations, was accelerated by other measures undertaken by the Berlin Government, mainly the cessation of rent subsidies.[12]

Gentrification of cities, the continuous dispossession of their low income dwellers, are carried on within the context of liberalized rents as well as controlled ones, albeit that the latter ones can slow down the pace of this process. However, the main difference is that liberalizing rents nearly eliminates rent law as a factor restricting or guiding this urban transformation, while in the case of rent control, this process is shaped by the closes of the law that allow profit making.

The double standards of Lebanon Law on Rent since 1992

In Lebanon, Rent control dates back to the 1930s, and it was promulgated in the same era of other rent control laws around the world, and consists of similar articles and directives to these laws, such as fixed rent prices, unlimited period of rent, or the inheritance of the contract. The peculiarity of the Lebanese case was a product of the 1980s, where a sharp devaluation of the Lebanese currency took place, coupled with the lack of any action by the State to correct the prices accordingly. Early in 1983, one U.S. dollar was equal to around 4 Lebanese pounds, ten years later, in 1992; it reached 2500 LBP, a 700 fold increase. The first correction to rent prices came in 1992 when pre-inflation rents were increased between 40 and 160 fold.[13] A considerable boost of old rent prices, however they are still far below current.


US Dollar to Lebanese Pound exchange rate, 1973-2013. Illustration by author.

In same year, 1992, a new Law on Rent was promulgated, totally liberalizing new contracts, as it was the case in many countries during that period. However, a temporary freeze was applied on pre-1992 contracts, a situation that did not change for the following two decades. In this sense, old rent contracts have to be viewed as an exception to the law, which was renewed on yearly basis. During that time, several attempts were undertaken to formally put an end to this exception. They were crowned with the promulgation of a law on rent dated 9/5/2014.

Post-1992 contracts are signed for a period of three years maximum, after which another new contract is negotiated. A situation clearly in favor of property owners, allowing them to keep on extracting increasing financial profit from their properties. The situation is far less favorable for property owners renting their properties according to the Old Law. They are nearly deprived of any prospect of profit making via rent increase, thus any financial gain has to go through the abrogation of these contracts, and the most practical way to reach this end is Article 8-c of the Law 160/1992: The upcoming demolition of the building and the reconstruction of a new one.

The impact of the law(s) on rent on urban transformation in Beirut

This close of the law is clearly an urban renewal tool, that real-estate industry did not fail to take advantage of, especially in the context of densely built Beirut. In post-war Beirut, two real-estate booms took place in parallel to the reconstruction of the central district, the first in the late 1990s, while the second began around 2005, and ended five years later. They were mainly fueled by a rampant speculation and favorable regulations, such as the 2004 Law of Construction.[14]

It is farfetched to consider the law on rent as one of the factors behind these booms. But the conditions created by old rents, the constraints facing property owners, and especially the weakness of the latter’s negotiation positions vis-à-vis developers, resulted in these property owners to be more willing to sell their properties, or go into a partnership with real-estate investors or developers, and that to achieve financial profit. The ensuing result was that most of the boom took place in lieu of old rented buildings.[15] A considerable part of Beirut’s built heritage was destroyed, and a significant number of old residents of the city were evicted, as it is shown by the below case study on Furn el-Hayek neighborhood.


Buildings demolished and evicted families in the western part of Achrafieh. Source: Les Carnets de l’IFPO .




New constructions in the western part of Achrafieh. Source: Les Carnets de l’IFPO .

The real-estate bubble in Beirut led to a five-fold increase in land prices.[16] In its turn, this inflation increased -new- rental prices, de facto forcing additional low and middle income people out of the city.[17] And here it is noteworthy to point to another specificity in the case of Lebanon, which is the chronic lack of comprehensive data and information. This situation usually leads to estimation and speculation replacing hard facts. For instance, the numbers of old rent contracts in Lebanon is estimated between 60,000 and 180,000, while no figures exist on new contracts, whose number is supposedly much higher.[18]

This specificity usually blurs the lines, and it also has repercussion on discourses and narratives of the urban development in Beirut. For, with the ongoing debates around the abrogation of the old law on rents, many activists, journalists and researchers are considering that the old law on rent is preserving what is left from Beirut, its residents and its heritage, in face of the real-estate industry dynamics. For example, the Committee for the Rights of Tenants, considers the abrogation of the old law will lead to the “[destruction of] what is left of co-existence spaces. [...] To empty Beirut of its middle- and low-income population. [...] To enable the control of real-estate companies and banks over what is left of Beirut’s old building stock, using it for speculation purposes., [and] to facilitate the demolition of what is left of Beirut’s built heritage.”[19] However this discourse is in a sharp contrast with the empirical finding that point to the old law on rent as one of the mechanism of urban renewal in Beirut.

In this context, the latest reform to the law in rent will eliminate this mechanism, since all rent agreements in Lebanon will follow the existing Law on Rent, the total liberalization of rent, which played minor role in the demolition-reconstruction process. Hence the abrogation of the old law will not boost real-estate industry, but rather it will lead to a change in the dynamics of urban transformation in Beirut. On the impact of this latest reform, the chief economist of Byblos Bank Group, said:

"It will certainly have an impact on the market because property owners will be able to generate real income from their property if they want to keep their tenants and agree with them. If they want to recuperate their property, they can decide to put it on the market or give it to their children, or some may want to refurbish it. It is an individual decision.[20]"

Therefore, the direct result is the empowering of property owners in face of the real-estate industry, since it provide them with other alternatives for extracting profit from their properties, other than demolishing them. One of the outcomes might be the preservation of the built heritage. But it seems that one thing is for certain, that with the absence of any comprehensive housing policy, more and more low income residents of Beirut will be evicted from the city, that is gradually transforming into an exclusive space for the higher classes.

Conclusion

Within the context of neoliberal restructuring of cities, less wealthy dwellers are constantly pushed out of central urban areas. Rent Liberalization facilitated this process, and rent control laws could not prevent it. The latter laws, as they stands today, contains in themselves the mechanisms of ending this control, therefore they also played a significant role in these displacements, and in the case of Beirut, this was achieved through radical transformation of the built environment. The gentrification fostering in Berlin and Beirut at the expense of rent control legislations shows that these laws can be easily manipulated by real-estate and Capital dynamics.

Rent control was brought in time of economic and security uncertainties, mainly to control the consequent social crisis. They were conceived as stability agents, and not for social justice means. Rent control can privilege, for a while, old residents of the city, but with all the capitalistic dynamics in place, it also makes it harder for new incoming population to find affordable places. Control tends to establish static situations; it runs in contra to the nature of cities, as highly dynamics entities. While liberalizing rents in a pure economic liberalism context, ensure this dynamic, it also leads to enclosure of the cities, for the rich only. Hence the need for a different approach that transcends this polarity, and towards measures that guarantee the right to housing for all dwellers of the city. A law on rent, alone, cannot achieve this objective, and it has to be considered as one of several complementary actions, to ensure and consolidate that right.

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1. Willis, John, “Short History of Rent Control Laws,” Cornell Law Review 36(1), 1950, pp. 54-94.

2. Ibid.

3. Whitehead, Christine, and et al., The private rented sector in the new century: a comparative approach, Copenhagen: Boligøkonomisk Videncenter, 2012.

4. Health, Sarah, The Historical Context of Rent Control in the Private Rented Sector, Standard Note SN/SP/6747, House of Commons Library, 2013.

5. Alber, Jens, “Germany,” in: Flora, Peter (ed.) Growth to Limits: The Western European Welfare States Since World War II, vol. 2, Berlin: De Gruyter, 1986, pp. 1-154.

6. Neoliberalism is basically a return to economic liberalism after decades of keynesianism or other sorts of social welfare system (Smith, Neil, The New Urban Frontier: Gentrification and the Revanchist City, London: Routledge, 1996)

7. King, Desmond, and Wood, “The Political Economy of Neoliberalism: Britain and the United States in the 1980s,” in: Kitschelt, Herbert, and et al. (eds.) Continuity and Change in Contemporary Capitalism, Cambridge: Cambridge University Press. 1991. pp. 371-397.

8. Whitehead and et al., 2012, op. cit.

9. Gulliver, Kevin, “Thatcher's legacy: her role in today's housing crisis,” in: The Guardian, April 17, 2013. http://www.theguardian.com/housing-network/2013/apr/17/margaret-thatcher-legacy-housing-crisis (accessed October 6, 2014)

10. Hamnett, Chris, “Improvement grants as an indicator of gentrification in inner London,” in: Area 5, 1973, pp. 252-261.

11. Glass, Ruth, London: Aspects of Change, London: Centre for Urban Studies, 1964.

12. Holm, Andrej, “Urban Renewal and the End of Social. Housing: The Roll Out of Neoliberalism in East Berlin's Prenzlauer. Berg,” in: Social Justice 33(3), 2006, pp. 114-128.

13. Republic of Lebanon, Law on Rent, Law No. 160/1992, July 22, 1992.

14. el-Achkar, Hicham, “The Lebanese State as Initiator of Gentrification in Achrafieh,” in: Les Carnets de l’Ifpo, July 5, 2012. http://ifpo.hypotheses.org/3834 (accessed on October 30, 2014.)

15. Ashkar, Hisham, “A Response to the “End of Rent Control in Lebanon,” or the Deficiencies in Urban Research on Beirut,” in: Disturbanism, Blog, June 26, 2014a. http://disturbanism.wordpress.com/2014/06/26/a-response-to-the-end-of-rent-control-in-lebanon-or-the-deficiencies-in-urban-research-on-beirut/ (accessed on October 30, 2014.)

16. el-Achkar, 2012, op. cit.

17. World Bank, Lebanon - Economic and social impact assessment of the Syrian conflict, 2013. http://documents.worldbank.org/curated/en/2013/09/18292074/lebanon-economic-social-impact-assessment-syrian-conflict (accessed on October 30, 2014.)

18. Ashkar, 2014, op. cit.

19. “Al-Mousta‘jireen al-Qoudama li Berri: Mashrou’ Lajnat al-Idara You‘ases li Karitha Wataniya wa Insaniya [Old Tenants to Berri: The Administrative Comittee’s Draft Paves the Way to a National and Humanitarian Disaster],” in: National News Agency, June 28, 2013. www.nna-leb.gov.lb/ar/show-news/42143/ (accessed on October 30, 2014.)

20. Schellen, Thomas, “Rumble in the urban jungle,” in: Executive Magazine, May 8, 2014. http://www.executive-magazine.com/business-finance/real-estate/rent-law-rumble-in-the-urban-jungle (accessed on October 30, 2014.)