Are rent caps necessary for our market?
The reintroduction of rent caps in Abu Dhabi raises questions about the housing sector
After months of downwards pressure on the rental housing market in Abu Dhabi, the Department of Municipal Affairs and Transport reinstated a 5 per cent cap on rent increases. While analysts are divided as to the usefulness of the rent cap in the current climate of falling rents, our readers strongly support the measure. According to 5,000 readers questioned by TaskSpotting, 97 per cent supported a cap on rental increases. Additionally, 97 per cent of respondents felt that rents were too high. The full results of the survey will be available in Friday’s paper.
With one of the most expensive rental markets in the world and a largely transient expatriate community that has been known to contract and expand over short periods of time, any government intervention into the housing market is bound to start a conversation.
One question on our minds is whether a rent cap is even a good measure for our market given our unique challenges. We have long advocated that the free market should dictate rents, but to realise the full potential of the sector there are several other factors that must be addressed.
Unlike similarly priced markets in London or New York, landlords here require large upfront payments of rents. Regardless of whether a landlord will accept one payment or several, the result of this system is a severe curtailing of mobility in both the housing and employment sectors. Some residents enjoy no-interest housing loans from their employers while others are forced to seek bank loans to cover their large rent payments. The result is that these people are unable to quickly move between jobs or move flats depending on prevailing market conditions.
The situation as it stands discourages risk by tying residents to constrained rental contracts through payment schemes. If we want to encourage flexibility in the workspace and risk in the form of entrepreneurial exploration, the rental system in place is a barrier. Moreover, these artificial constructs of the housing sector are inhibiting the free market from behaving naturally and thus it requires measures such as rent caps.
The rent cap is one device designed to provide a temporary solution to the current needs of the housing market. To fully recuperate housing and bring it in line with prevailing free market trends will require serious thinking about the very foundations of the sector.