Developing rental housing policy

Stimulating rental accommodation
Around the globe vast numbers of urban families live in rental accommodation. Notable in this respect are several Asian and West African cities where a majority of households rent accommodation: Calcutta, 56%; Kumasi, 65%, Port Harcourt, 88%; Seoul, 59%.

Even where tenants do not constitute a majority, their numbers may still be enormous. Both Sao Paulo and Mexico City have around four million tenants.

In practice, very few third-world governments have a coherent rental-housing policy. Insofar as they have a clear objective it seems most have resolved that rental housing should disappear. They have joined the majority of developed countries in encouraging the current trend toward universal owner-occupation. Middle-class families are buying houses with the help of a mortgage; low-income families are invading land or buying land in illegal subdivisions and building their own homes. Few governments have tried to increase of improve the rental housing stock. Few governments have even mentioned rental housing in their policy statements.

At the heart of a sensible housing policy lies some form of redress to the current advantage given to home-owners. A rental housing policy should offer tenants (and by implication landlords) equal standing with owners. There are a number of ways of achieving this goal. They include (1) Removal of rent controls. Such action is desirable insofar as controls are often socially regressive in their effect and usually discourage investment. Their impact is certainly not transparent, and they fail in low-incomes areas where rental contracts are often lacking. (2) Incentives to private builders to construct rental housing in decaying central-city areas. Such policy would be environmentally sound,would help to control crime, and most significantly would help create homes in just those areas where many households want to live. (3) Creation of tenant cooperatives in decaying central-city areas where landlords are not interested in letting housing to low-income groups. A cooperative, financed by a mortgage, would buy the property from the landlord. Government subsidies to upgrade the quality of the accommodation could be offered to help stimulate the process of association. Loan guarantees to cover the cost of purchase should be available. Where the property is badly deteriorated, the sale price would cover only the price of the land. (4) Low-income rental housing could also be encouraged through settlement-upgrading policies, particularly by introducing water and sewerage services and improving the quality of transport. Upgrading mechanism have generally been found to contribute to improved quality and quantity of housing, private improvements consisting to a large extent of added rooms and otherwise increased sheltered space at the disposal of the households. (5) Encouraging the use of a clear form of rental contract that favours neither landlord nor tenant. Such a contract should lay down the period of agreed tenure, the method of modifying rents, responsibilities of for maintenance, etc. It must be backed up by a cheap and rapid method of arbitrating disputes. (6) Changing government regulations over mortgage lending in order to remove the bias towards completed owner-occupied housing. This bias often makes it unattractive or impossible for financial institutions to lend for rental housing or condominium housing, or for house improvement or unfurnished core houses on serviced sites. (7) Targeted credit to self-help landlords where formal credit is unavailable. The contribution of such landlords to the housing stock of third-world cities is considerable, although they are seldom made to feel that their contribution is welcome. Such credit schemes would not require any kind of registration by landlords (something that many would fear); it would simply require a publicity campaign to draw attention to the targeted credit programme.
Governments should seek to change their attitude to rental housing because there are so many tenants that they should simply not be ignored. Governments should develop a rental-housing policy and should attempt to rectify the current bias in favour of owner-occupation. In the process, they should modify their existing legislation on rental housing because it has often been counter-productive. Rental controls have contributed to the decline in private rental investments; building regulations have had a similar effect.

2. Rental housing should be encouraged because it is a cost-effective shelter strategy. In addition, there are excellent reasons for believing that a more positive approach to renting might actually improve housing conditions. Since rental housing tends to offer tenants a better location and superior services and infrastructure than does self-help housing, its improvement offers a means of raising the quality of shelter in most cities. Direct investment in rental housing will also help to reduce suburban sprawl and illegal forms of land occupation. It may also help to finance service improvements; landlords and tenants living on the same lot can afford basic services such as water.

Constrained by:
Promoting home ownership
Housing, tenants
Type Classification:
E: Emanations of other strategies