The “Old Rent” Law in Beirut: an Incentive or Disincentive for Gentrification?
Original text in French : http://ifpo.hypotheses.org/4266 (translation by the author)
There is a recurrent debate in Beirut regarding the consequences of the “old rent” law and the way of transforming it. It has gained strength since an apartment building collapsed in Fassouh neighbourhood (Ashrafieh) on January 15 2012 because of insufficient maintenance. Twenty-seven residents were killed. Beyond the controversy opposing landlords to tenants, the issue of rent control raises the salient questions of the way to regulate the current process of urban renewal and to protect the future of disadvantaged populations in a city which, in parallel to its post-war reconstruction, is facing gentrification. In this regard, how can we understand and interpret the underlying impacts of rent control: does it slow down gentrification by enabling working-class households to benefit from affordable housing in (peri)central areas or does it favour a rapid and radical redevelopment of the built environment ?
Inherited from a first law that was enacted at the end of the Second World War, Rent Acts n°159 and 160 — known as the “old rent” law — were introduced in July 1992 after the end of the civil war. They froze all rental agreements signed before this date, which accordingly do not take into consideration inflation, the increase in rental housing market, and Lebanon’s currency collapse during war years (especially between 1983 and 1987). However, old rents are supposed to take into account the eventual rise in wages. Meanwhile, the law liberalizes rental agreements signed after July 1992 and allows new rents adjustment every 3 years. In addition to giving the opportunity to transmit the right to occupancy to other family members, the legislation specifies that old agreements can be called off in two specific cases only: building demolition and the use of the real estate property by the landlord or his/her family members. Any breach of agreement generates tenants compensation set by a court decision. Compensations usually reach an amount of 25 to 50% of the asset value.
One prevalent point of concern is currently the number of households benefiting from this privileged treatment within the city of Beirut. Whereas there is no official figure, assessments can vary threefold from 58.000 agreements according to Executive magazine to more than 170.000 for the Committee for the Rights of Tenants (Cochrane, 2012). Without any accurate estimates, beneficiary households seem to be nevertheless tens of thousands, not always experiencing disfavoured economic situations. Moreover, the Lebanese state itself would also benefit from this law for the renting of different ministry buildings.
Rent control: a threat or remedy for social diversity?
In Beirut, gentrification consists of a demolition-reconstruction process affecting generally old mansions and small residential buildings. It radically alters socio-economic balances and the built environment. On the one hand, for some analysts, Rent Acts n°159 and 160 could be envisioned as a remedy to limit the industrial approach of urban renewal presently at work since they make tenant evictions more complex. Indeed, as soon as they receive a notice, residents can delay eviction proceedings for years by starting endless legal manoeuvres and using their politico-sectarian networks. Such legal provisions would therefore support a complex form of social and territorial organization through the possibility for a substantial number of poor and rich households to pay low rents in central areas.
On the other hand, some observers view rent control as an incentive for renewing housing stock. Though most landlords have secured a return on their initial investments, such real estate properties turn out to be unprofitable because of the gap between a low rental income and significant maintenance costs, also combining with the financial shortfall due to the absence of complete use of assigned development rights. From a strictly economic point of view, no landlord has interest in keeping his real estate assets under Rent Acts n°159 and 160.
This low level of rental yield leads to the deterioration of affordable housing stock through the lack of regular maintenance. For instance, the ten apartments under the “old rent” regime in Fassouh’s collapsed building brought in $160 a month only (for all) to the landlord. In areas experiencing significant land and real estate pressure like Gemmayze and Hamra, such a gap often push owners to sell their properties to real estate developers looking for land and development rights or to undertake their own project development. Indeed, floor area ratios are often underused compared with those legally allowed since the prevailing 1954 zoning law still assigns central and pericentral areas with the most significant development rights. Furthermore, the 2004 construction law fuels this pressure through the introduction of a new calculation basis for developable surface, favouring greatly real estate developers. While numerous landlords are deeply attached to their generation-owned family mansions, they would sell their assets in “sheer desperation”, participating in the progressive destruction of Beirut’s heritage. In this regard, the Swedish economist Assar Lindbeck (1972, 39) contends that "next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities."
Ensuring access to affordable housing for middle and working-class populations
The question of preserving or transforming the “old rent” law coincides with another challenge intimately related to the gentrification process taking place since the end of the civil war: granting access to affordable housing for middle and working-class communities within the municipal limits of Beirut. The city is experiencing a structural mismatch, both qualitatively and quantitatively, between a limited supply and a sharp demand for affordable housing, be it in the current housing stock and the recent real estate developments. In other words, the affordable housing supply is insufficient and recent housing units — often planned for elite and upper middle class households — are not suited to this category. Often replacing residential buildings whose apartments benefited from the “old rent” law, many luxury real estate developments are speculative: housing units are sold but they are rarely inhabited and introduced on the rental market. Since the early 1990s, the stakeholders of the real estate market are repeatedly offering, in the wake of Solidere, a housing supply disconnected from local demand features.
This shortage contributed to the increase in the rental market segment that is not subject to rent control. In this regard, the rapid deletion of Rent Acts n°159 and 160 — meaning the liberalization of the whole housing stock — will confront many households with a housing market they cannot afford. Massive evictions towards the periphery should be feared and could result in the rise of social and territorial inequality between gentrified central urban areas and peripheries coping with a substantial influx of pauperised families. This process would be far from being harmless in a society where the socio-sectarian fabric is still largely contentious.
The necessity of transforming Rent Acts n°159 and 160
Facing this complex situation, any fair solution must associate the revalorization of landlords’ assets with a sustainable solution ensuring decent living conditions for tenants and the support of social diversity in Beirut’s central neighbourhoods. Because of its uncertain social consequences, the modification of the “old rent” law is a delicate topic for the political establishment, especially since general elections are expected for the spring 2013. With Lebanon’s chronic political instability, any viable reform will be possible only under the impetus of a powerful government capable of managing pressure from landlords’ lobbies and providing current beneficiaries with concrete, fair, and inclusive solutions.
While a reform bill was blocked in the Lebanese parliament since 2006, Fassouh’s building collapse revived the controversy with the creation of a working committee run by MP Robert Ghanem. A couple of leaks published in newspapers in the past few months mention the objective of liberalizing all rents in a six-year period, with an annual 15 % adjustment the first four years and a 20% one the last two years. A governmental fund would be established for a nine-year period in order to assist the most vulnerable families as a transitional solution before the progressive construction of public housing. Nonetheless, we can be doubtful about the way this fund would be supplied and the state capacity to start building affordable housing at a time where the Lebanese state is more indebted than ever. In parallel, some alternative proposals emerge: for instance, the revocation of lease transfers within a same family could favour the progressive status mutation of apartments presently under the rent control regime while ensuring a “smooth” modification of residential practices for young households from the middle and working classes. Yet, such an evolution should rest upon the availability of an alternative and affordable housing supply, which is missing to date.
As highlighted by L’Orient le Jour newspaper (Andraos, 2012), this delicate question must be handled delicately in order to avoid turning it into the catalyst of a latent social crisis in Lebanon within the context of “Arab spring” uprisings.
- Andraos, R., 2012 : « Le nouveau projet de loi sur les loyers, détonateur de la crise sociale ? », L’Orient Le Jour, 5 avril 2012. [En ligne] http://goo.gl/QLCj0
- Cochrane, P., 2012 : « Turning Tragedy to Transformation », Executive Magazine, 3 mai 2012. [En ligne] http://goo.gl/hy5th
- Lindbeck, A., 1972 : The Political Economy of the New Left, New York, Harper and Row.