It is an open secret that, given the political instability of the past three years, the Lebanese real-estate sector has suffered a sharp decrease in demand for upmarket property. In spite of this, giant construction cranes, and glass-and-steel towers continue to dominate the Beirut skyline—something that is unlikely to change anytime soon. In this context of decreased demand and continued supply, the Lebanese Parliament opened a Pandora’s Box on the first of April 2014, when it voted for a new law liberalizing “old rents” contracts, thus terminating the fierce battle that has raged between landlords and tenants for decades. Nevertheless, the issue of rent control has yet to be settled given that former Lebanese President Michel Sleiman refused to enact the new law, and instead brought it before the Constitutional Council on 19 May 2014. Despite its uncertain future, this proposed reform allows us to better understand the politics of pro-growth city-making in Beirut specifically, and in the Eastern Mediterranean more generally, since it lays the legal and operational foundations for further property-led redevelopment.
The “Old Rents” Law: A Necessary Reform
In July 1992, following the end of the civil war, Rent Acts no.159, and 160—known as the “old rents” law—were introduced, freezing all rental agreements signed prior to July 1992, while liberalizing post-1992 contracts, in an attempt to guarantee all Lebanese citizens access to housing in the delicate period of post-war recovery. Though originally a temporary measure, the 1992 law has become a de facto affordable housing policy benefiting thousands of households, at a time when intensive property-led (re)development has made Beirut increasingly inaccessible for low and middle-income families. Moreover, the law has preserved rare social diversity in historic areas such as Ras Beirut, Verdun, and Achrafieh, in a city where ageing neighbourhoods are increasingly being turned into a Dubai-like landscape of luxury high-rises and malls.
Despite these seemingly positive outcomes, the “old rents” regime has been criticised on a number of grounds. Firstly, it has shifted the responsibility of providing affordable housing from the state to individual landlords. In so doing, it has obligated landlords to address issues that are beyond their purview and abilities to tackle successfully, while letting them shoulder alone the financial consequences of such a policy. Secondly, the low return for owners—often no more than a few hundred dollars a year—creates a rent gap (Smith 1987), which has two crucial consequences, both of which are fuelling important changes in the city’s built and social landscapes. On one hand, it prevents landlords from properly maintaining existing constructions, resulting in poor living conditions, as well as disasters, such as the 2012 collapse of a residential building. On the other hand, it represents incentive for urban renewal as landlords are encouraged to sell their property to developers eager to benefit from substantial development rights. Finally, the law negatively affected the free rental market, and took part in rent inflation because it made landlords reluctant to offer long contracts (i.e. more than one-year), and potential investors wary of buying rental apartments, because of the fear of getting trapped in a similar system of rental regulation.
[The Mar Mitr neighborhood. Image by author]
As a result, with the exception of landlord and tenant associations, there is an emerging consensus in Beirut over the necessity of finding a middle-ground solution by reforming the “old rents” system in order to ensure decent living conditions, and tenure security for tenants, a legitimate revenue increase for owners, and the city’s social diversity. In other words, there is a felt need for a new system that could balance the exchange and use values of residential property in a socially inclusive yet economically efficient manner. The question is: does the proposed reform meet such expectations?
A Poorly Designed Reform Maximising Exchange Value
The new law passed on 1 April 2014 attempts to address the many concerns regarding rent control by phasing out “old rents” contracts over nine years. This reform is anchored in three mechanisms that are critical to understanding its underlying rationale favouring the profit-seeking real-estate industry: 1) the progressive rent readjustment and liberalization, 2) the compensation fund, and 3) the two tenant-vacating scenarios guiding compensation policy.
- Rent Readjustment and Liberalization: In determining rent readjustment, the exchange value of property has been privileged over its use value: rents will increase twenty-oen fold over an initial six-year period after which the new rent will be applied for three additional years before complete liberalization. The new annual rent—i.e. the property rental value—will be based on a significant return (five percent) applied to the property market value, which will be set either by a mutual owner-tenant agreement or by a judiciary commission.
- The Compensation Fund: The new law requires the establishment of a compensation fund that the state would use to cover all or part of the rent increase for low-income households (i.e. those earning less than three times the minimum monthly wage: 3 x $450 = $1,350). In addition to running counter to recommendations made by various international institutions—such as the International Monetary Fund—to put an end to clientelism-prone public structures, the law does not provide a clear mechanism for how the fund would be financed, mentioning only that it would benefit from state allocations and private donations. Moreover, the low-income households that should benefit from the fund would face extremely restrictive eligibility criteria: the law requires any applicant to be Lebanese, to submit a decision on the property market value of their home, and to provide proof of their financial situation. Such eligibility criteria are baffling given the often-strained tenant-owner relations in Beirut, and the importance of the informal job market to the Lebanese economy.
- Tenant-Vacating Scenarios: The new law identifies two possible scenarios for tenants leaving a property under the “old rents” regime during the initial nine-year period. Both scenarios would see tenants compensated for vacating “old rents” property, irrespective of their financial situation, and primarily benefit the actors of profit-seeking city building over the city’s residents. In the case of voluntary departure, the state would be obligated to compensate tenants through monthly allowances drawn from the compensation fund. In the case of forced departure precipitated by a landlord’s unilateral decision, it would be incumbent upon the landlord to compensate the tenant. While this was already a requirement under the rent control system, the reform significantly modifies the compensation granted to tenants when paid by landlords rather than the state. The new law sets a lower fixed rate than that of the previous regime, which was equivalent to thirty-five to forty percent of the property market value. During the first year, landlords would pay only twenty percent of the property market value, if they want a property back for family reasons (e.g. giving the apartment to their children), and thirty percent if they want it for commercial reasons (e.g. building a real-estate project involving demolition and reconstruction). In either case, compensation paid by landlords would decrease after the first year, and would halve for properties located in “luxury buildings.”
Overall, then, this reform seems aimed at encouraging tenants to leave their apartments, and at reducing both the duration of the eviction period, and the compensation paid by landlords and, in fine, by developers eager to take over land. It also preserves the financial capacity of households looking for new housing through the upholding of tenant-vacating compensations. The specific form that the reformed law has taken can be seen as evidence of the increased agency of rent-seeking city builders or “urban entrepreneurs” (Logan and Molotch 1987; Harvey 1989)—including banks, developers, construction firms, and large property holders—in creating a supportive legal environment to pursue their pro-growth agenda, and secure their corporate interests. As such, the current property-led development that this law would further enable is best understood as a “growth machine,” or a political economic system “embedded in a series of social institutions (e.g., unfettered real estate, local-national fiscal arrangements)” (Molotch 1993: 31, 47), in which “nested elite groups with common stakes in development” take over the legal and institutional fabric to intensify land use for private gain.
A New Piece in the Puzzle of Property-Led Urban Restructuring
Even if implemented, immediate changes to the existing rent system are unlikely, given the many legal and administrative hurdles the new law would face. Nevertheless, the formal termination of rent control would probably fuel two enduring trends for the entrepreneurial city making process underway in Beirut: (1) the increased availability of land for high-end developments, and (2) the pursuit of a two-track residential strategy for middle and low-income groups.
Lebanon’s construction boom over the past decade has left Beirut with limited land available for new real-estate projects. Meanwhile, apartments under the “old rents” system are mostly in old low-rise buildings located in historic central neighbourhoods—areas that are considered prime land by developers interested in extensive development rights allowing the construction of upmarket tower blocks. Is the proposed termination of rent control intended to facilitate the destruction of the old urban fabric in order to make land available for new and more profitable developments? The substantial decrease in compensation paid to tenants, especially for “luxury buildings” dating from the 1960-70s, and mostly inhabited by middle-class households, seems to confirm this assumption, as residents are usually a major obstacle to rapid demolition in the frequent case landlords are ready to sell their property. The complex rules governing the evaluation of new rental values, as well as the possibility of suspending rent increases for tenants applying for financial aid, can moreover be interpreted as covert incentives for landlords to give in the developers’ calls in order to avoid these administrative and legal hassles. In precipitating the rapid transformation of the built environment, this reform is but one piece of a much larger profit-seeking urban strategy, which includes the 1995 law on coastal development, the 2004 building law, the priority given to rent-to-own housing programs through the Banque du Liban, and the Banque de l’Habitat, as well as the absence of taxation on land and real-estate capital gain. Over the past two decades, these intertwined policies have ensured an increased commodification, flexibilization and informalization of city building in order to facilitate the circulation, and accumulation of capital in Beirut’s built environment (Krijnen and Fawaz 2010).
[The Gemmayzeh neighborhood. Image by author]
Importantly, the rent control reform was proposed concurrently with the liberalisation of exploitation factors in order to finance the civil service salary hike. These two reforms are therefore complementary, as the end of “old rents” will make more prime land available, while a more intensive use of the land will be permitted through the salary adjustment package. Since land is a key resource for governing coalitions (Stone 1993), it is likely that both reforms would perpetuate the rent-seeking character of property development, and significantly contribute to the construction of upmarket towers by distributing new incentives to the real-estate industry. As such, the end of rent control would provide another boost to the “growth machine” in Beirut.
The new law also reinforces two dynamics that have dominated housing policy for middle and low-income households. First, middle-class groups will be encouraged to apply for rent-to-own programs, which seek to ensure effective demand by giving old tenants the possibility to use their vacancy compensation as a down payment and to have priority access to subsidized mortgages. This rental-purchase strategy, which has been endorsed by the Banque du Liban for years, is fuelled by the elimination of rent control will bring middle-class tenants, as well as owners who sold their property to developers, onto the rent-to-own property market, thus boosting domestic demand precisely at a time when foreign and diaspora demands are increasingly weak. Second, as no alternative to affordable housing solutions have been proposed, the urban poor will likely face further vulnerability, and political dependency under the new law. Being too old and/or too poor to be eligible for mortgages, vulnerable households leaving “old rents” apartments are likely to be increasingly dependent on family networks, and to rely more heavily on the social services provided by political-sectarian groups, as they will fill the vacuum left (intentionally?) by the state elite. Populations benefiting neither from family nor sectarian networks might eventually face a “double penalty” effect since they will, in addition to being evicted, also have to deal with a substantial inflation in rental properties to which they will automatically contribute as they arrive on a market with a limited supply of affordable housing.
Towards an Alternative Approach to Housing Provision and Urban Development?
Ultimately, neither tenants nor landlords will benefit from this proposal, whose primary beneficiary seems to be the real-estate industry. Irrespective of rent control’s many problems, the new law does little address high rent costs, and, crucially, does not represent a historical rupture in the production of urban space in Lebanon. Rather, it is an amplification of the previous property-led and supply-driven regime of city building. As such, it is intended primarily not to address the needs of Beirut’s residents but rather to provide prime land for urban renewal serving the interests of city builders, to organise and consolidate the rolling back of the state from housing policy, to boost rent-to-own programs for middle-class populations, and to exclude low-income communities from central urban areas. Any just and, in the long run, effective reform of the “old rents” system should rely on a comprehensive approach built around the state’s central role in meeting the challenges of housing provision, and urban development. Such a reform could includes: 1) the progressive termination of rent control through the end of contract transmission between family members, 2) the creation of an alternative supply of rental affordable housing units by creating incentives for developers, and providing financial aid to low-income households, 3) the limitation and/or transfer of development rights in Beirut to deter developers from systematically tearing down old urban areas, and d) the greater involvement of municipalities in order to further decentralize urban policy-making. A balanced reform, focused on city-dwellers rather than developers, could provoke a genuine public debate about the state’s role in managing urban redevelopment, and in guaranteeing a right to affordable housing as much as a right to property ownership in Lebanon.
[This essay is based on current doctoral research addressing the political economy of city making in Beirut and Istanbul. Most arguments elaborated are based on discussions and interviews during fieldwork conducted in Beirut in May and June 2014. The essay also builds on a presentation given at IFPO on 23 April 2014. The author would like to thank Giulia El Dardiry, and Jadaliyya editors for insightful comments.]
 Rent control is not new in Lebanon, as Rent Acts no. 159 and 1960 are the continuation of similar regulation systems dating from 1939.
 There is no official record, evaluations range from 60,000 to 180,000 contracts mainly located in municipal Beirut–as well as in Tripoli to a lesser extent–and primarily held by low and middle-income senior households. Landlords also have a diverse social profile ranging from middle-class individuals owning a single apartment to corporate developers possessing entire apartment buildings.
 There is no available estimation on the proportion of rented apartments in Beirut where, in the rental free market, the annual rent represents three percent of the property market value (i.e., from $75 to $150 per sq.m. per year for old properties, according to Guillaume Boudisseau from Ramco Real Estate Advisers).
 Rent control was extended eleven times since 1992, with the last one-year extension dating from the summer of 2011, and ending in 2012. As the Parliament was not able to meet because of an ongoing cabinet crisis, a decision on whether to extend or terminate the system was expected when MPs began meeting again in March 2014.
 This figure is based on personal calculations, and corroborated by other analysts in Le Commerce du Levant.
 The financial management of such public structures is often subject to controversy as illustrated by the contested practices of the Central Fund for Displaced in Lebanon in the 1990s (Leenders 2012).
 Under the 1967 and 1974 laws, "luxury buildings" were defined as residential buildings with specific facilities, such as an elevator, hot water, central heating, and a concierge. They represent a considerable part of the housing stock in areas such as Ras Beirut, Achrafieh, Verdun, etc.
 The parliamentary commission in charge of drafting the reform had initially also included some incentives for developers to build rent-to-own housing units; however, these measures were not included in the final bill submitted to vote.