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Milei Tries to Tackle Rent Control in Argentina

Summary:
The major cities of the world have been facing housing problems for years. With the increase of immigrants and of people experiencing homelessness, the discussion about housing regulation has intensified.The West, once a bastion of ideas of freedom and free markets, continues to harbor central planners whose delusions of omnipotence are paid for by the misfortune of ordinary people as the regulation attempts of these planners fail because such rental laws were not implemented “well enough.”It is not difficult to become familiar with these cases as they may possibly be part of one’s own personal experience when renting a house or an apartment. Stepping back a bit, we find large cities full of vacant housing units and people in deplorable conditions. The universal

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The major cities of the world have been facing housing problems for years. With the increase of immigrants and of people experiencing homelessness, the discussion about housing regulation has intensified.

The West, once a bastion of ideas of freedom and free markets, continues to harbor central planners whose delusions of omnipotence are paid for by the misfortune of ordinary people as the regulation attempts of these planners fail because such rental laws were not implemented “well enough.”

It is not difficult to become familiar with these cases as they may possibly be part of one’s own personal experience when renting a house or an apartment. Stepping back a bit, we find large cities full of vacant housing units and people in deplorable conditions. The universal laws of supply and demand do not care who the regulator is: price controls create scarcity, no matter how “precise” or “well-crafted” the legislation may be.

The rare cases are those where one is no longer under the control of rental laws. Such is the case of Argentina, where President Javier Milei repealed a law last December known as the Rental Law that was enacted in 2020.

What did the law propose? It basically proposed the following:

• The property would be rented for a minimum of three years.

• There would be an annual price adjustment under an index created by the Central Bank.

• The security deposit could only be limited to the first month’s rent.

• The tenant would establish the terms of contract termination.

• The tenant could make emergency repairs and deduct them from the rent.

• The landlord should register the contract with the AFIP (tax collection entity in Argentina).

The warnings were duly presented: it would generate housing shortages.

Economic Implications

The impact has been terrible and has affected the lives of millions of people. In fact, it is almost unanimously considered one of the greatest political malpractices in recent years.

In Argentina, the norm has always been that there is inflation, and more inflation is always expected. With this law, the landlords know that they cannot adjust the rent price to their tenant-at-will for three years so, to not lose money, they set a very high initial price to cover themselves.

In this way, access to rent consumes the greater part of the salary or results in residing in less-preferred locations. Quality of life is thus greatly diminished—discouraging people from moving, starting a family, pursuing their dreams by moving to a new city, or limiting the independence of young people. The entire social fabric is damaged.

Many landlords preferred to keep their properties vacant rather than dealing with so many difficulties and legal risks because of the law. Others found ways to work around the law and rented to acquaintances or trusted people.

Although Argentina is an extensive and diverse country, the focus is usually placed on the city of Buenos Aires, which—although not always a representative sample—has the largest number of inhabitants and can be compared with other major cities in the world. We will use it as an example in Figure 1 to observe the evolution of supply and price, as well as to appreciate the effects on the market with the enactment and repeal of the law.

Figure 1: Rental market trends in Buenos Aires, Argentina, September 2015–January 2024

Milei Tries to Tackle Rent Control in Argentina
Source[DB1] : Frederico González Rouco based on DGEyC and INDEC.

The effect of deregulation was immediate, as can be seen in Figure 1. In the following weeks of February and March after the repeal of the law, the supply continued to increase, and prices remained below inflation. Now, the entire rental contract is decided between the parties.

Even the currency in which rent payment will be made can also be agreed upon between the parties, considering the rejection of the Argentine peso. While some opt for periodic price updates in the local currency, paying in dollars has become popular, and there are also cases where payment was agreed upon in bitcoin.

Political Implications

Now, we cannot settle for a mere analysis of the situation based on indexes and price trends. Behind every regulation, there is induced scarcity, and behind induced scarcity, there is a politician finding an opportunity to proclaim themselves as the solution.

The desperate difficulty in finding housing was a feast for the Left. A certain politician who believes himself to be a modern Che Guevara gained popularity by defending land occupation “as a right” and ended up being a presidential candidate in the last elections (although he got 5 percent in his party’s primaries, against whom he would later face Milei in the general elections).

“Groups” also began to appear, which were nothing more than X accounts managed by a single person (“coincidentally” the son of a legislator), who spoke on behalf of tenants and “defended” their rights.

The discussion was increasingly shifting to the Left: new laws were proposed, such as a tax on vacant housing or direct expropriation.

On the other hand—with a desperate and servile population—in the last election, opportunistic politicians had promised “loans for rents” at a special rate from state banks. Forget mortgage loans (in Argentina, they haven’t existed for many years); these are loans to pay your rent.

When regulation is allowed, it is very easy to go down a slippery slope that leads straight to the worst road to serfdom. The institution of private property is completely distorted, leading the population to unimaginable miseries. The Argentine deregulatory experience can serve as a case for all the countries of the world and their metropolises. Fortunately, that is part of the past, the paradigm is changing, there is light at the end of the tunnel, private property is becoming sacred again, and Argentina is fighting for a new liberty.

 [DB1]Bill, there is no link for this source.


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