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Is it time to freeze rent?

April 21, 2020

On January 29, the Parliament of the city of Berlin passed a new law freezing rent prices in the fast gentrifying city. The move was certainly not a response to the rising Coronavirus scare. The scare had not yet turned into an unprecedented global crisis. Newspapers such as the Guardian reported about the move as a plan as early as mid 2019. It was a conscious policy response to the crisis of galloping rent prices in a city where only 18% residents reportedly owned homes. In fact, practically half of all Germans do not own their homes. They live happily enough in rented accommodations. German men or women do not appear to be brought up on the Indian (or perhaps global) middle class common sense, which markets home ownership as a definitive indicator of successful asset ownership or respectability. Leaders in Berlin were only trying to address the concern that fast growing rent prices were gradually pushing out the lower income population and the elderly from the city. Their income had either stopped growing or could not match the rising rent prices.

News of the five year rent freeze in Berlin did not exactly set the global media on fire. It was reported in several media platforms, but did not ignite any informed debate. Even in Berlin, the move only narrowly managed a majority vote in the legislature. Berlin’s parliament at the moment is led by a majority coalition of the Left Party, the Greens and Christian Democrats. Opposition parties and trade bodies of real estate entrepreneurs have since mounted a powerful protest campaign against the law. They claim it will cause a depression in the economy by discouraging investment in the real estate sector.

Right now, however, the news has assumed an unprecedented urgency. It has emerged as a credible policy option available to address the basic reality that a majority in India, and probably in the rest of the world, suddenly finds their income has either stopped growing or is not going to grow fast enough over the next several months. High profile economists have been exploring thousands of policy options on how to address the unprecedented sudden impoverishment caused by the global C-19 scare. Quite simply, the informal sector may disappear altogether, at least for the short term. It will not impact the poor alone, but the lower middle and the middle classes too, simply because nearly eighty to ninety percent of the working population in India operates in the informal sector. It requires no special expertise to see that the current crisis threatens the entire economy in ways that will take decades to classify or understand. While formal economics is a highly complicated exercise and is best left to trained experts, it is easy enough to see that number of Indians with a sudden inability to pay house rent will see an exponential leap.

It is possible for India to do what Berlin did, under these special circumstances? Is it possible to consider seriously the idea of freezing all rent income for the time being, at least for a year or two? It is hard to claim with any confidence how many Indians will immediately sink into irremediable poverty if income from house rent were to stop immediately. In other words, it is not clear how many Indians have no income other than house rent. It may not be an inconsiderable number. Some clarity is in order here. I do not propose for rent payment to stop altogether, but only that it

cannot be raised any more. This is not a terribly radical or unprecedented policy option. Rent control acts have been passed in the past, including in India. Unfortunately, rent control acts in the past would tend to freeze rent at a given time, and perpetually rule out any enhancement. Such acts would often result in the tenants fattening themselves at the expense of the landlord.

This is not the time or occasion for a detailed presentation on the past application of rent control acts. On the contrary, it is an occasion to seriously consider it as a viable, and provisional, policy option to help our cities and small towns cope with very real prospects of depopulation in the very near future. In Indian cities, or even satellite towns, the most vulnerable population is not made up of the elderly. Floating, or if you like, migrant, casual labouurers, form the most vulnerable population in Indian towns and cities. Almost all of them live in rented accommodations, and a great many among them live in shared accommodations. It is a safe guess that most of those congregating in the interstate bus terminus on the outskirts of Delhi when the Uttar Pradesh government had decided to briefly resume bus services amid the countrywide lockdown to ferry stranded laborers home belonged to this category. If they had enough reserve to keep paying rent, they would not so immediately, and so desperately, rushed for home.

It is not clear when so many of these floating laborers will return to their rented accommodations in the cities and towns. It is clear, however, that their landlords cannot replace them right away with fresh tenants, simply because there is a total lockdown in force in the country. It may be a couple of months at least before normalcy is nominally restored. Even then, a large percentage of vacated accommodations will continue to remain unoccupied, for the simple reason that not everyone who has left would return immediately. If the number of returnees does not overtake the number of the departed, rent is unlikely to rise, except in case of an artificially manufactured crisis. It is an indirect confirmation of the assumption that the landlords relying solely on the rent income are going to struggle anyway, or that they will probably survive alright, though marginally depleted, without a steady rise in their rent income.

The percentage of homeowners in Indian cities or towns cannot be too large. Report of an election survey carried out before the Delhi assembly elections observed that over 60 percent of Delhi homes ownership might be caught up in varying degrees of disputable legality. Delhi probably presents an exceptionally high proportion of disputable legality in home ownership, especially since it had to bear the brunt of partition more than any other Indian city. Only Kolkata comes close to Delhi in terms of the impact of partition, and it has its own rich history of disputable legality of home ownership. More importantly, Kolkata, or Mumbai, too has to support a very large number of migrant labourers who live in rented accommodations, and who have since the lockdown left for home in massive numbers.

There are many suggestions as to how to revive the economy post the lockdown, the most impressive so far being the Canadian decision to transfer a basic survival grant to every single citizen. Canada, of course, has a long and distinguished history of a robust public healthcare and social security delivery system. That history probably made the idea of a universal survival grant relatively easier for its government and society to conceive and implement. However, economists of all stripes are fast in agreement that in times of crisis we are all either Keynesian or socialist.

While such opinion leaves room for speculation that we should be something else during ‘normal’ times, there is little doubt among experts that unrestricted public spending alone can bring the national or global economy back on track. Against this unanimity, it may be suggested that the state undertake to look after the interest of the limited income landlords who may come to immediate grief following a temporary freeze on the rise in income from house rent. It is time to initiate a wider debate on calibrated protectionism. Some sections of the population need protection, not as a perpetual entitlement, but as a means of empowerment. How to wean them away from protectionism turning into a life insurance by default under all circumstances is a separate debate, and can wait until the immediate crisis blows over.

Let us agree, if we are serious about doing something positive to the millions of our countrymen who have either lost jobs or homes or both during the last one month, that there should be no additional burden on their shoulder when they choose to return to their workplaces. Their landlords, on the other hand, will be keen to make up for their lost income, since they too will see a dip in their rent income during the absence of their tenants. This is not about tenants or rent, in the ultimate analysis. It is about an invitation to think, collectively, about what to do, in a time of zero universal productivity, with that part of the population which is fashionably dismissed as unproductive, and therefore, to be taken lightly or regarded as disposable. If this universal zero productivity black hole persists for long enough, in which all of us become, and remain, unproductive, beyond a threshold level, what is to be done to keep our cities or towns going? A great many have already entered into a perpetual zero productivity black hole, simply because there is no guarantee that their jobs will come back even after ‘normalcy’ returns. There will be no normalcy, ever, for them, for the national or global economy has already shrunk beyond prospects of full recovery. Discussions around it are not flooding the public sphere only because the state of pandemic alert has not been lifted yet.

It is time to start talking about those who will never see normalcy again, even if they survive the current state of abnormality. It is time to resume discussion about whom we consciously choose to cut adrift forever. When and how do we cut our losses? What does the economic, social or intellectual counterpart of amputation feel like? How do we write about it?

This blog was first published in Asiaville.

Dr. Anirban Badyopadhyay, Associate Professor, Unitedworld School of Liberal Arts and Mass Communication (USLM)

Disclaimer: The opinions / views expressed in this article are solely of the author in his / her individual capacity. They do not purport to reflect the opinions and/or views of the College and/or University or its members.

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