Rental Law: Between Socialism and Capitalism (1)

The rental law may appear to be a dry legal topic, relevant only to readers who are property owners or tenants. However, the reality is far more profound; this legislation can be one of the most important laws determining the shape of cities, the dynamics of real estate investment, and people’s ability to secure adequate housing. Housing is not merely four walls and a roof; it represents family stability and the livelihood of generations, while simultaneously being an investment that requires capital and returns sufficient to justify the risks. Thus, the story begins with the clash between socialist thought, which tends to expand state intervention to protect tenants, and capitalist thought, which grants the market greater freedom to determine rental prices and lease durations. In reality, most countries combine these two approaches to varying degrees, ranging from the far left to the far right.

To illustrate, let us examine the Egyptian experience, which is among the most thought-provoking. For decades, old rental laws imposed restrictions on rent increases and the termination of lease agreements, causing some contracts to span multiple generations. Meanwhile, the value of the currency changed, property prices multiplied, and maintenance costs soared. Consequently, the actual owner of the rented property and their heirs bore the burden. Imagine an apartment with a view of the Nile rented out sixty years ago for a few pounds, with its rent remaining fixed, thereby losing its market value due to the presence of that tenant. In contrast, the market value of a similar vacant apartment today is worth millions. This highlights the paradox between protecting tenants and maintaining the viability of real estate investment.

These restrictions, alongside other economic and demographic factors, weakened the attractiveness of investing in rental properties. An investor unable to adjust their returns to match inflation may prefer building units for sale rather than holding them for rent. This has placed significant pressure on citizens, particularly employees and artisans with low to moderate incomes, who are unable to purchase homes and simultaneously struggle to find rental units affordable to their means. This situation contributed to the expansion of illegal and unplanned construction amid difficult economic and demographic conditions. Furthermore, the maintenance of old buildings was notably neglected, sometimes dangerously so, until the new Egyptian law of 2025 was introduced. This law began addressing old rental relationships through transitional periods, attempting to correct imbalances accumulated over decades without causing sudden social shock.

In Portugal, where cities like Lisbon suffer from high housing costs and pressure from tourist demand and short-term rentals, citizens can no longer compete with foreigners seeking to reside there, whether for retirement or remote work. The Golden Visa program, linked to real estate ownership, has also driven many citizens out of the city in search of housing that fits their declining incomes, leading to widespread citizen discontent. This prompted the government to abolish the real estate Golden Visa system and work on legislation encouraging investment in units designated for middle-income renters. This includes combining rental regulation with tax incentives. Instead of relying solely on restrictions, taxes have become a tool to motivate landlords to offer their properties for rent under specific conditions, including tax exemptions of up to 50%. This is an experience worth monitoring to determine its effectiveness in increasing housing supply and curbing rent hikes without resorting to socialist ideology.

As for Germany, some rent controls have been tied to comparable market rent levels, while in New York, one of the leading global financial and business capitals, a rent stabilization system applies to certain residential units, despite the city’s position at the heart of a capitalist economy. This underscores that rent regulation is not exclusive to any particular economic system. An economic study published in 2019 on San Francisco’s experience showed that expanding tenant protections helped increase housing stability for current residents, but it was also associated with a roughly 15% decline in the rental supply of affected properties, as some landlords altered their decisions regarding property use. This paradox warrants careful consideration: a law may succeed in protecting current tenants while making it harder for future tenants to find housing. In such cases, as the saying goes, “neither our present nor our future is good.”

This brings us to the most important question: Is it sufficient for the state to protect tenants from rising rents, or should it also ensure that investors continue to build and rent out housing? Should justice lie in price stabilization, or in achieving a balance between the rights of both parties? These questions lead us to the Kuwaiti experience, which I believe offers a model worth examining, given its balance between tenant stability and landlord rights, even though it contains a significant legislative gap that I have previously addressed in writing and in recent discussions, and which I will revisit in the next article.

Salam. Adnan Abdullah Al-Othman