Rent control causes jitters

Property experts say the resuscitation of the Rents Ordinance of 1977 with the establishment of five rent-control boards is a poorly considered political decision that could tumble the property market and cause adverse ripples throughout the economy.

The establishment of the boards has prompted mixed reactions. On the one hand it is considered a politically driven move to mollify the youth vote for next year's national election.

Elsewhere it is considered a necessary and welcome move to tame runaway rental fees.

The Ministry of Industrialisation, Trade and SME Development announced in November the establishment of rent-control boards in Windhoek, Swakopmund, Walvis Bay, Oshakati and Rundu.

This came after sustained campaigning for the reintroduction of rent-control boards by the Affirmative Repositioning (AR) movement, which culminated in a court challenge and an out-of-court settlement.

The result was the setting up of the boards, consisting of a magistrate as chairperson, representatives of the five local authorities, the National Youth Council, the Shack Dwellers Association and Namibia Housing Action Group, and the AR movement.

However, many property experts feel that insufficient consideration was given to the manner in which these boards will be reintroduced and that not enough consultation was done.

Background

Rent control has its origins in the aftermath of the First World War when European cities and towns were flattened by incessant bombardment. This critical short supply left millions homeless and at the mercy of landlords who charged exorbitant rent and rented the same rooms to multiple tenants.

It is in the context of demand far exceeding supply that rent control kicked in elsewhere too.

Critics, however, argue that rent control does not necessarily mean that governments - by enforcing price control and forbidding rent increases – protect tenants from extortion and exploitation. The trend globally is a sharp turn away from rent control, which many consider as unhealthy and unhelpful price controls imposed by governments.

“People did not really use rent control, which on its own is a very dangerous system,” comments André Swanepoel, a director at the law firm Dr Weder, Kauta & Hoveka who specialises in commercial and property transactions.

Swanepoel, who coincidentally entered the property market in 1977 when the Rents Ordinance came into force, recalls that for residential property the ordinance was only enforced for a few years.

“The problem with rent control is that it causes slums. This is proven globally,” Swanepoel said.

What happens in such a situation is that entire neighbourhoods become rundown because landlords struggle to pay their mortgages with the lower rental income and consequently stop maintaining their buildings.

The landlord often becomes a slumlord - someone who owns only rundown property in slums where rents are the lowest and where payment is erratic and unreliable. The second effect of rent control, Swanepoel says, is that there is little incentive for property developers or investors to build or buy new homes, since they can no longer rely on healthy returns.

Swanepoel acknowledges there are positive aspects to rent control, the main one being preventing exploitation of the lowest income groups.

In Namibia, the 1977 Rents Ordinance fell into disuse, particularly for the residential property market, when rent-control boards became defunct and this was never challenged.



Reactions

The manager of the Namibian Estate Agents' Board (NEAB), Festus Unengu, thinks rent control is a good idea because consumers need protection.

Although it is not the board's mandate, the NEAB, in the absence of anything else, has over the years been inundated with complaints from tenants over high rent charged across the country.

“It is good to see there are now boards legally mandated to deal with these issues,” Unengu says.

But he is quick to point out an obvious conundrum, which is that in a free-market economy a government-enforced rent ceiling would infringe on property ownership rights.

“Ownership is the most real right. No one, not even a court of law, can dictate how much I should ask for my property. That is why the rental market is the way it is,” Unengu says.



Self-regulation

Schantal Teichmann, manager at Just Property Namibia, thinks rent control is superfluous because the rental market regulates itself. Teichmann acknowledges that rent reached untenably high levels a few years ago, but says it has dropped considerably in the last three years.

Over the last year or so the rent on expensive units has dropped by N$1 500 to N$2 000 per month; for smaller units it has dropped by about N$1 000 per month.

“I think the introduction of rent-control boards is too late. They should have done it when rents were excessive. The market has in the meantime started to regulate itself,” Teichmann says.

But, because property prices are excessively high, especially in Windhoek and the coastal towns, mortgage repayments are high too and consequently renting remains beyond the reach of many, particularly young people.

Teichmann says despite the drop in rent young people often live with their parents or share apartments to save on rent.



From rent control to slumlords

Swanepoel says the property market is skewed because the government has “dismally failed” to deliver on its social responsibility of providing sufficient affordable housing.

The government's mass housing scheme, which was supposed to provide low-cost housing, turned into an “uncontrolled farcical game for tenderpreneurs who scrambled for contracts but failed to deliver, ” he says.

That also resulted in the prices of mass housing units rising beyond the reach of low-income earners.

Mass housing prices, which were expected to range between N$250 000 and N$300 000 per unit, have escalated to between N$600 000 and N$800 000. Another factor contributing to the skyrocketing property prices is the failure of local authorities to deliver enough serviced plots. On top of that, they started selling land on auction to the highest bidders.

Prices increased even further when preference was given to previously disadvantaged developers at auctions, who eventually sold the land to bigger players, Swanepoel says. The general consensus is that property experts should be consulted if rent-control boards are to make any meaningful contribution to Namibia's housing crisis.

CATHERINE SASMAN