Reforming the rent control law

Updated on: Tuesday, January 12, 2010

All is not well with rent control legislations with many in developed countries having abandoned their buildings. Based on accommodation analysis carried out in New York’s South Bronx area, it was criticised that ‘rent control’ was destroying housing resources, development and other activities. If controls were not abandoned by the state or local bodies, it was believed that owners preferred to abandon their own buildings. William Tucker says that such a thing happened. About 30,000 New York apartments were abandoned annually from 1972 to 1982, a loss of almost a third of a million units in this 11-year period, according to a study undertaken by a NALSAR student, Rohan Menon. He wrote, “studies instituted in view of the impending debate over reforms in the rent control legislation in 1996 and 1997 show that New York has lost 200 of its 250 national corporate headquarters over the last 25 years, in part because these companies found housing almost unattainable for transferring employees. Besides, 88 per cent of tenants living in pre-war, rent-controlled apartments have not moved in more than 25 years. This has led to a condition of low vacancy rates, much below the national average. Rent control has also meant that entire sections of apartment blocks in New York are in an utter state of disrepair, with landlords not wanting to spend money on ‘wasteful’ improvement costs.’’
The situation in Indian cities is no different, where tenants do not move out of leased premises and continue for generations paying meagre rents and harassing owners. Though it may not be possible for Indian middle class owners to abandon their homes, it was reported that owners abandoned their apartments by not spending anything on repairs. Strangely the tenants were also not ready to spend money on the property.
Rohan Menon further writes, “The Rent Stabilisation Code stipulates that landlords must offer tenants a renewal lease (at the stabilised rent) before the expiry of the present lease. That code also limits the set of circumstances in which a landlord can evict a sitting tenant (non-payment of rent, for example). Because of rent controls, potential investors fear to invest or build any new rental housing complexes.” In fact every rent control enactment will exempt new buildings from rent controls for 10 to 15 years. Indian rent control laws also stipulate such exemptions to new structures or renovated structures. Still investors are too cautious to put their faith in rental housing in New York. This is because the law makers at times legislate to bring new structures within the purview of the rent control legislations as well. Menon writes that the New York City’s government has broken its promise to exempt new or vacant units from control three times. In India law makers take years and decades to issue even a notification and publish this in the gazette enhancing the minimum rental value for the application of the law. The upper limit of Rs 3,500 is ridiculously low in fast growing metropolitan cities where tenants cannot get even a single room for Rs 4,000!
Menon gives details of two major rent control regimes in New York — ‘rent control’ and ‘rent stabilisation.’ Rent control was a stricter regime compared to the latter, which was started in 1969. Under the rent control regime, there was less scope for an increase in the rate of rent. Around 70,000 units are under this control, which doesn’t accept vacancy decontrol. The alternative regime is rent stabilisation in which periodic rent increases were allowed. The Rent Regulatory Board has to approve those increases. Around 1.1 million of the city’s 1.7 million apartments (about 63%) were regulated. This Board became a pressure group with strong roots that disallowed any sectoral reform. In India, the rent control law is gradually being reformed with a need to protect both the middle class tenant and landlord.

The author is a professor at NALSAR University of Law, Hyderabad

Reforming the rent control law

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