In April 2023, Ethiopia approved tighter rent controls to regulate price hikes putting strain on tenants. The new law requires landlords to consider guidelines set by local authorities before raising rents. While tenants welcomed protections from inflation, landlords argued the law undermines their property rights. Experts noted it risks straining landlord-tenant relationships without sufficient tenant recourse or landlord safeguards. The policy sparked debates around balancing social and economic goals. Critics say simply capping rents may backfire by discouraging needed housing investments. Yared Seyoum, BirrMetricsStaff Writer, has more details from Addis Ababa on the varying views around this contentious new law.
On April 2023, the Ethiopian government approved a new rental housing proclamation that seeks to introduce stricter controls over how much landlords can increase rents across the country. The new law aims to better regulate rental prices and prevent sudden spikes that put undue financial strain on tenants. However, it has also prompted debates around balancing tenant protections with landlord rights.
The legislation was passed by parliament with a majority vote in late March 2023, though attendance was lower than normal at just 244 MPs out of the total 547. The minimum requirement for a vote was met but the lower turnout has led to questions about broader support for the new rules amongst lawmakers.
Nonetheless, Tesfaye Blijige, the government's chief whip defended the legislation back then, saying its goal is to stabilize rents and help tenants cope with high inflation rates. "The rental market was in need of reform as tenants, especially those on low and fixed incomes, were facing uncertainty with landlords increasing rents rapidly and unexpectedly. This new framework will bring more transparency and fairness to rental negotiations," he stated.
Under the new framework, landlords will be required to refer to price guidelines published by local authorities before raising rents on existing tenants. The authorities will introduce standardized guidelines by July 7th that both parties must consider when discussing rent amounts.
Specifically, when determining how much to increase rents for current tenants, property owners will have to justify any increases based on changes in the guidelines. Things like building maintenance costs, property taxes and general cost of living adjustments may be factored in. But landlords cannot unilaterally hike rents severely above approved thresholds.
Local administrative bodies in each district and neighborhoodwill now oversee the rental process and relationships between tenants and owners. They are tasked with developing a standardized rent calculation methodology, registering rental contracts, addressing disputes and ensuring all parties comply with the rules.
If landlords are found to have raised rents excessively beyond the guidelines, they could face penalties like temporarily canceling the rental agreement or reimbursing tenants. The law is aiming to rein in bad actors while also providing some flexibility depending on individual property and tenant circumstances.
Initial reaction to the legislation from tenants has been positive as they look to gain more stability and protections from rental inflation. Wegahyehu Damene, a father of two who lives in a rented two-bedroom house in the Jomo neighbourhood of Addis Ababa shared that he has faced massive rent hikes in just one year, with costs jumping from 12,000 birr to 18,000 birr.
"The inflation is impacting tenants more than landlords. This new rent rule is a big win for us and will help stabilize our living situation. It was long overdue and I say better late than never. It also formalizes the relationship between tenants and owners," he noted.
Wegahyehu hopes the guidelines will curb further arbitrary increases that stretch household budgets to the limit. Most importantly, having clear parameters on rent determination will empower tenants in negotiations and remove landlords' leverage to price gouge at will.
However, not all tenants share this perspective on the regulations. While welcoming measures to curb excessive rent inflation, Senayit Shimelis believes it may damage the trust between tenants and landlords. "There needs to be a balance - this new rule has created uncertainty and fear on both sides. Both their interests should be considered," she said.
Property owners like Ephrem Nebiyu who have rental units also raised objections to aspects of the new law. With three tenants living in his home, Ephrem said the government did not properly address landlord rights.
"This will strain our relationships with tenants. And it does little to actually solve the severe housing shortage problem facing the capital. Officials should have focused on increasing the housing supply instead of bringing new controls," he remarked.
Ephrem is worried the guidelines may constrain his ability to fairly increase rents over the long run to cover rising operational costs. He argues landlords also need protections and incentives to continue providing accommodation in the difficult rental market environment.
Endale Mekonnen, a real estate lawyer based in Addis Ababa, felt the rules may benefit low-income tenants in the short term. However, key issues around constitutionality and implementation remain unresolved in her opinion.
Article 40 of Ethiopia's constitution clearly establishes private property rights for every citizen. But the new rental law does not sufficiently acknowledge a landlord's ownership interest in their property, Endale explained. "Their right to earn income from a rented asset they fully own has been undermined."
Endale also pointed out the lack of clear penalties or dispute resolution mechanisms outlined if landlords breach the new controls. "What actual recourse do tenants have if owners raise rents above the limits? Fines? Contract termination? This legal ambiguity could breed further problems," Endale cautioned.
Overall, while intentions may be good, the attorney believes more consultation was needed with key stakeholders and the law should have built in stronger safeguards for landlords too within the constitutional parameters. A balanced approach respecting both tenant and owner rights is still needed, heconcluded.
The passing of the rental proclamation has sparked wider discussions within Ethiopia on balancing social welfare goals with individual economic freedoms. Supporters argue regulations are necessary to curb financial hardship in a period of high inflation. But critics contend it amounts to overreach into private contracts.
Some analysts point out that a landlord's capital expenditure and risks in property ownership need consideration too when state policy intervenes. Simply capping rental increases may discourage property investment and new housing supply in the long-term if profits look unattractive.
Others note that while rent controls aim to make shelters affordable, distortion of market pricing signals can inadvertently worsen housing shortages in cities like Addis Ababa when demand stays high but landlords shy away. Subsidies and construction incentives may work better, according to experts.
Looking ahead, consensus is the new framework will need careful implementation and regular reviews based on emerging social impact data and legal compliance issues flagged. Both sides of the tenant-owner dynamic must remain heard to achieve the goals of housing access and price stability sustainably, according to Endale.
The rental housing proclamation may still undergo revisions in consultation with legal experts to address gaps and concerns as it comes into effect later this year. As Endale said, success will depend on how well authorities balance the rights of all groups affected - finding that nuanced middle ground will be crucial for the policy's long term success in Ethiopia.
