The impact of the 2020 Private Residential Leases Act – insights from economics

Abstract

This chapter applies insights from economics to assess the potential impact of the regulatory regime introduced in the residential leases market, in Malta, as of January 2020. It provides an overview of the main tenets of the Private Residential Leases Act as well as the context in which it was introduced. The chapter outlines the economic case for cautious intervention, highlighting examples of both market and regulatory failure. The analysis draws upon insights from economic theory and hypothesises that such intervention is likely to result in market regularisation and stability, but also higher costs on suppliers (landlords), creating upward pressures on rents. A theoretical exposition of the effects of the Covid-19 pandemic, on the other hand, forecasts a concurrent downward pressure on rents. Insights from administrative data illustrate these arguments in the first year of the new regulatory regime in Malta. The chapter provides practical suggestions for maximising the benefits of regulation while addressing any unnecessary rigidities and deadweight costs. An agenda for further economic research concludes.