Rent Control

Ministerial hubris cannot obviate fundamental principles of the marketplace.

By
November 29, 2014 22:05
3 minute read.
Keys (illustrative).

Keys (illustrative).. (photo credit: INGIMAGE)

With much fanfare, Finance Minister Yair Lapid and Justice Minister Tzipi Livni last week heralded the advent of yet another rent-control bill.

Livni was particularly upbeat: “As of today property owners cannot determine things,” she proclaimed. “From this day on, we, the state, will determine everything – for everyone.”

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It would hardly be unwarranted to wonder whether her assertive sentiment could truly promote the interests of either landlords or tenants.

If the object of regulating the rental market were to restrict the options of apartment owners then no problem would exist and no need would manifest itself for officialdom’s further intervention.

This is because our law books contain a wealth of legislation so severely undercutting the interests of proprietors that for long decades rental flats were barely available.

Rent was so rigorously controlled that whole swaths of old Tel Aviv, for example, were subject to yesteryear’s socialist-inspired regulations that made it impossible to collect realistic rents and froze them, often at pre-state levels.

The dilapidation and neglect are still evident in prime seaside locations that look like blitzed streets in wartime.

It paid to keep spare flats empty rather than subject them to strangulating regulation. That changed only in the early 1990s, with the influx of olim from the former USSR. To increase housing options, the rental market was significantly deregulated. The effect was striking and immediate.

More than 20 years on, it is still doing this country a great deal of good, and it is estimated that over a quarter of urban Israelis reside in rented quarters.

That is not to say that there aren’t landlords who take wrongful advantage of the opportunity, subdivide flats into unsuitable cubbyholes, demand exorbitant rents and frequently hike them. But that is chiefly the problem in lucrative big-city locations. It’s the global state of affairs.

Space in the bustling hearts of central cities – from New York, London, Paris, Moscow and all the way to Tel Aviv – doesn’t come cheap.

Livni and Lapid may well be echoing yuppie constituents, largely in Tel Aviv. But further away from the trendy hubs, it is a whole different picture.

Tampering with the availability of flats and with today’s relatively bureaucracy-free rental process may simply remove units from the market. The resulting decrease in supply would inevitably send rents spiraling upwards.

Ministerial hubris cannot obviate fundamental principles of the marketplace.

Furthermore, the attempt to portray landlords as tycoons is spurious. On the Israeli scene, most apartments are let by middle class owners with one extra unit – be it via inheritance, savings, in lieu of pension investment or by oldsters who moved to retirement homes. On the whole, big business is not in the business of letting apartments.

The good news is that the bill is still far from adoption.

Even if it is ultimately passed, moreover, it would be difficult to enforce its convoluted requirements unless the sides sue each other, and instant gratification is nearly impossible in such a process. This bill’s provisions are too poorly defined to afford reliable redress.

It is hard to envision renters rushing to engage in lengthy legal battles in a scenario of decreasing supply and rising demand, and it is even harder to presume that under-the-table deals could be entirely prevented.

Thhe blatant intention to turn overloaded local authorities into quasi-overseers is another source of difficulty.

The implementation of much of the new bill would hinge on municipalities putting together data banks of rental contracts to define what is widespread and acceptable.

It is safe to assume that the cities would balk at the additional burden if this demand becomes compulsory. If the process is voluntary, it is equally safe to assume that no city would take on the extra burden.

All this and much more (going, for instance, into the nitty-gritty of whether renters can be charged additionally for an air conditioner and who bears the responsibility for its repair) is contemplated for a market that is especially sensitive to bull-in-the-china-shop initiatives.

If enacted, this could have lose-lose consequences – depriving small time ma-and-pa owners of legitimate income, while obliging renters to shell out greater portions of their income.


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