Friday, 20 July 2012

The argument for rent control in Namibia

The Namibian newspaper has requested that the Namibia Consumer Protection Group to express themselves on the escalating rental prices being charged in the country. The price increase in rentals of property have increased drastically and people cannot afford these prices as their salaries have not increased accordingly.

What is Rent Control?
Rent control refers to laws or regulations that set price controls on the renting of residential housing. It functions as a price ceiling. Rent control exists in approximately 40 countries around the world.

Generally the laws dictate the frequency and degree of rent increases and are limited to less than the rate of inflation.

Arguments for rent control
First, on the economic front, such a law gives the tenant the ability to insist on certain improvements being done a minimum standard, without allowing the landlord to retaliate with higher rental fees.

Secondly, the social dynamics of rent control, or to use the correct term, rent stabilisation, is an important one for consumer protection. Without rent stabilisation, landlords can demand any increase and tenants must either pay or move. These regulations provide some assurance that the consumer can maintain stability in their housing situation.

Third, the moral argument is that housing is a human right that is more important than the property rights of the landlord. With this argument, the landlord's income is restricted to a formula, for example no more than 20% higher than the monthly installment on a bond for a house of this value.

Arguments against rent control
The main argument against is the putting a cap (highets price) on rent reduces the quantity and quality of housing available.

Introducing rent control reduces the number of investors willing to purchase housing for the purpose of renting to receive an income. Thus rent control can lead to creation of less housing, raises prices and increases urban decay in certain areas of a town.

If rent control should be introduced in Namibia, this will reduce the resale value of affected properties. Thus, banks and other mortgage holders would find the values they estimated to be higher than the true resale value if they need to foreclose. In addition, municipal valuations would have to be reduced in line with the value reductions.

What is causing the problem?
Rather than just accept Rent Control as the only solution, we need to look closer at the problem and find the causes of rental increases.

In essence, a free market economy such as ours allows all interested would-be tenants equal opportunity to offer a rental amount for the space. In conditions of monetary inflation and housing shortages rents rise as landlords have tenants willing to meet their asking price. In other words, the landlords would reduce rents if no-one was willing to pay the rental fee.

 Rent Control can be used as an interim measure to attempt to keep rental affordable, but this is not a solution that will solve the problem of the housing shortage in urban areas. Municipalities have to increase the number of erven available for building of lower income housing and the prices should stabalise once the supply and demand equation is more balanced. The costs of land-use regulation are also extremely unfair to the development low cost housing units and this is something that can be changed fairly quickly by local authorities.

The increase of rent in Namibia has led to high-cost to income ratio. Thus the families affected by high or unaffordable rentals means they are now unable to afford non-housing necessities such as food and medicines. The Namibia Consumer Protection Group (NCPG) believes the answer to the problem of high cost to income ratio is to directly increase the income of low-income households. The Government should look at a policy programme that provides food stamps, health insurance, national pension plans, etc that make non-housing expenses more affordable.

Namibia needs to find sustainable solutions which improve health, safety and comfort for all its citizens, and more specifically reduce the costs incurred by low-income families for the use of water, energy and housing.

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