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Rent-control tenants pay more while free-market rents fall

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Realtors say rents have fallen in the last five years, but according to the Consumer Price Index, they have actually risen every year since 2006, pushing inflation up.

This is because, ironically, rents for rent-controlled apartments went up during the economic downturn, while rents for free-market properties went down.

Thus while realtors say rents on the Island overall dropped by 25 percent and more on average in the last five years, people at the lower end of the rental market paid more because owners of rent-controlled properties were allowed by the Rent Commission to raise rents.

The Chamber of Commerce’s Economic Committee chairman Peter Everson and Shadow Finance Minister ET (Bob) Richards said the discrepancy needed to be looked at along with the effects of rent control.

Rent is by far the largest weighted sector in the CPI and the latest report showed it saw the following price increases:

* 3.9 percent in 2006

* 2.6 percent in 2007

* 2.4 percent in 2008

* 1.9 percent in 2009

* 1.3 percent in 2010

* 1.1 percent in 2011

“The largest component of Bermuda’s consumer price index is rent for housing which comprises 32.5 percent of the index,” Mr Everson said.

“It is puzzling to read that this item has risen each year for the last four years at a time when rents have fallen in the private sector by some 25 percent to 40 percent. The explanation provided by the Department of Statistics, that whilst the private sector has reduced rents those rents controlled by the Rent Commissioner have continued to increase, is surprising and needs careful examination to understand why this should be so.”

It was explained in the latest CPI report that a marginal increase in January of 0.2 percent in average prices of properties subject to rent control was offset by a 0.1 percent decline in properties not subject to rent control.

“This caused the rent sector to remain static in January,” the CPI report said.

Mr Richards, who has raised the issue in the House before, said it’s a consistent pattern where rent-controlled homes show a higher rate of inflation than free market properties.

“This is a continuation of a trend where market-driven rents have fallen with the recession while rents under rent control have continued to go up,” Mr Richard said. “So I would say rent control is not serving the purpose it was meant to serve in the first place.”

He said while increases have probably been allowed in many cases because the owners have upgraded the properties, he was sceptical that could be the full story.

“It just seems incredible the same thing has happened year after year,” he said. “It’s not fair and it needs to be stopped.”

But Government said the Rent Commission was following its clear objectives.

“The purpose of the rent control laws is to protect tenants from landlord abuse and exploitation and not to deny a landlord a just and equitable rent increase for his premises,” a spokesperson for the Rent Commission said, adding the Commission’s role is “protect the welfare of residential tenants from unfair rents increase, speculative rent gouging and unlawful eviction”.

Rent increases approved by the Commissioner have been determined as being reasonable and fair when taking into account the rent increase assessment benchmarks as set out in the Act.

“It should be noted that the Commissioner cannot take into consideration the personal circumstances of a landlord or tenant when assessing a rent increase,” the Rent Commission statement said. “Furthermore, it would appear that the non-controlled rental market is very soft at this time and continues to struggle in finding tenants to fill vacant dwellings.

“No doubt, this scenario has caused rents to fall and this sequence of events will probably continue until the economy improves and the non-control market firms up. Unlike the non-controlled market, the rent control market continues to be relatively firm in that there is still a demand for affordable rental housing in the controlled market.

“Moreover, landlords continue to improve their rental properties, and as such, lodge applications to the Commission whenever they think that an increase in rent for their property is justified.”

According to the Commission, some 17,000 (54 percent) of 31,700 properties on the Island fall under rent control. Rent control rental prices range from $900 to $1,300 per month for a studio, from $1,300 to $1,700 per month for a one-bedroom, from $1,700 to $2,200 per month for a two-bedroom, and $2,200 to $2,800 per month for a three-bedroom.

Back in 2009 MPs approved legislation that raised the annual rental value (ARV) ceiling band for rent control from $24,600 to $27,000.

At the time Government explained said that if the ceiling wasn’t raised, about 2,000 properties whose rental value had risen would fall out of rent control.

Eugene Foley is listed as the current Rent Commissioner, Gail Tucker Williams as assistant Rent Commissioner and the chairman of the panel that advises the Commission is Cromwell Shakir.

Anomaly: Rent-controlled property rents have risen even while the wider market has seen sharp falls
Shadow finance minister Bob Richards

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Published March 09, 2012 at 1:00 am (Updated March 09, 2012 at 7:45 am)

Rent-control tenants pay more while free-market rents fall

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