Rent control not answer to Lagos housing crisis
I read in the news that “Lagos State government has set aside the sum of N5 billion to kickstart her “one-month-in-advance rent scheme”. This, according to authority is government gesture to assuage the hardship of Lagos residents in paying their rents. There is a Latin maxim that says: “nemo dat quod, non habet”, meaning “you cannot transfer a proprietary right in properties that does not belong to you”. We always get policy formulation wrong when we fail to consult the appropriate professionals and other stakeholders in important issues.
Rent control refers to regulations and set of rules, which restricts the amount of rent that landlords or property owners can demand from tenants. There was rent control in Lagos through the Recovery of Premises Law CAP 118 Laws of Lagos State 1973. The most prominent aspect of this law is the rent control section which attempted to categorise Lagos State into “bands” for rental value purpose, neglecting the forces of demand and supply. There where categories A, B, C, D, E, F, etc depicting types of houses and the amount of rents the landlords in these areas can collect.
The rent control did not work because it came at a time that property business was booming in Lagos due to increase in business activities in Lagos State and the influx of income from petroleum products sale. Affecting the supply side ought to have been a probable solution and not capping the price! Instead of reducing or at least, fix the rent in the affected areas, the edict only succeeded in escalating rents of the houses as more people from different part of Nigeria realised there were opportunities to make money in Lagos State. The rent of different areas kept skyrocketing with increase in demand for housing.
The history of rent control in England and Wales is a part of English land law concerning the development of rent regulation in England and Wales. Controlling the prices that landlords could make their tenants pay formed the main element of rent regulation, and was in place from 1915 until its abolition (excluding some council houses) by the Housing Act 1988. It concerns the intervention of public law rights in private relations between landlord and tenant, and was put in place to counteract the inequality of bargaining power between landlords and tenants. It was considered an option because housing is a basic right of citizens! This is enshrined in Article 25(1) of Universal Declaration of Human Rights.
The rent control in Lagos State through The Lagos Tenancy Law 2011 stipulates that “if you are a landlord or an agent of a landlord or tenant, it is illegal to demand or receive from a sitting tenant or pay as a sitting tenant rent in excess of six months from a monthly tenant or in excess of one year from a yearly tenant”. We should be analysing how well this law worked since over ten years that it was promulgated instead of adapting it. Did the tenants and landlords of properties in Lagos State conform to this law within the years it has been in existence?
Rent control, in its operation, only attempts to control amount payable. The Maximum Rent Order is about amount of rent and not the tenure of advance payment. There was rent control deregulation in UK in 1989 because rent regulation was not working for private-owned properties. Government of UK then resorted to acting as a role model through her council housing and not as an Ombudsman. Residential housing is not only a basic right, it is an investment and a business and cannot be controlled by fiat. Rents are the sacrifices tenants make for using other people’s properties and are determined by the interaction of demand and supply forces.
Tenants, legally are temporary right owners on the properties that they are occupying. It will affect their ownership confidence if they are subjected to short term contract and rent payment without assurance of reasonable tenure like those in short term accommodation (home-sharing) by Airbnb, VRBO, Flipkey, Housertrip etc, shortlets, hotel rooms, holiday resort rooms and informal accommodations. Property owners who have in mind minimum of yearly rents in their cashflow budget before developing their properties cannot be subjected to monthly rent now.
Nigeria with housing deficit of 17 million according to World Bank report 2018, has a serious housing problem, quantitatively and qualitatively. Monthly rent can only be practiced when there are rental housing adequacy and not when there is scarcity in the rental market. There are “Rent Assured” and “Assured Tenants” statutes in UK to make one month-rent-in-advance work. What one month in advance means is that you pay two months rent in advance; the first month rent for occupation and the last month rent for caution (deposit for default). One month rent serves as deposit for default because tenants can be ejected within a month.
The one month rent policy works in UK due to the following: Unemployment rate is very low so there are effective demand for housing. Data management is good in UK and not in Nigeria. There is rule of law in UK and not in Nigeria. Mortgage loans work in UK and not in Nigeria and there is no housing deficit in UK but surplus. The result of forcing property owners to accept one month rent in advance will be creation of property black market. Some property owners will not rent out their accommodation and will prefer to allow it lie fallow. Some will go for leasing arrangements. Monthly rent in advance cannot work in Lagos State cities or in any city in Nigeria where there are shortfalls of residential accommodation.
Olufemi A. Oyedele is an Estate Surveyor and Valuer based in Lagos.