Saw this post on Instagram (https://www.instagram.com/reel/DAjCAJYusg6/?igsh=djRsOGh3ZzhyY2Zr ) which claims that the removal of rent control in Buenos Aires led to an increase in available housing and a decrease in housing prices which seems counter-intuitive to me.
Is the increase in availability due to landlords raising the rent and forcing existing renters out ( thus more availability)? But how then are the prices of these places somehow lower?
What am I missing?
In: Economics
More incentive to build houses -> more supply -> lower cost.
This even occurs, to an extent, with higher class houses because increasing supply at the top means people can trade up… leading to decreased demand/more supply at the bottom.
Property owners may be unwilling to rent at all under rent control policies. Revoking these policies lowers risk for the property owners and they are more willing to put more units on the rental market.
What you’re missing is the rent control laws themselves were kinda shitty. The big thing is they heavily restricted what kind of leases/tenancies you could have. With many instances setting the minimum to 3 years. And there were other restrictions as well.
This apparently caused many owners to think “screw it, it’s not worth the effort.”
Because Argentina is ALSO dealing with major inflation right now (like measured in the hundreds of percents). So if a landlord rents an apartment with a 3 year lease, and that inflation still keeps rising, that lease will actually become a detriment to the landlord because the value of the Argentine Pesos they would be getting goes down and down and down.
So, supply went up because those long term lease rules were repealed.
Didn’t Boston get rid of rent control in the 1990s and rent prices skyrocketed?
There’s not a super simple explanation because it’s multiple things. The biggest tends to be construction: rent control laws slow down construction of new units (because why build a new apartment building if you can’t make much money) and that lack of new supply translates to higher costs, so remove the rent control and prices come down.
Another part is that over time rent controlled units tend to be bought and kept by the wealthiest residents of that area and often if rent is out in place some of them would rather just not rent to anyone at all.
The reason I said it’s not super simple to answer is because even though it’s all logical, we don’t know for sure until economists look at evidence and research. Every time research is done it shows the same thing: that rent control policies are terrible and do the opposite of what they intend. They are just one example of economic price controls failing, which is pretty well understood by economists at this point.
In the US, new housing really isn’t limited by profit incentive. New apartments generally aren’t rent-limted currently (rent control is usually about preventing landlords from raising rent year-on-year) and rents are already way higher than where they were, relative to wages, a couple of decades ago. So no one is being prevented from building new housing because of a cap on the rent they can charge. If you’re talking about requirements that new developments have *affordable housing*, that’s a different term than rent control, and can be done more or less effectively.
What’s *actually* limiting housing more than anything else is restrictive zoning that flat-out forbids it, at any price. Most of the land area of most cities is exclusively zoned for detached single-family houses, which happens to also be the most expensive kind of housing. Denser housing, including anything from apartment blocks to flats to duplexes, is only allowed to be built in a small central area that’s already been built on. Getting rid of this restrictive zoning and allowing denser development is the single biggest thing a city can do to naturally increase its housing supply and reduce costs.
You’re missing the supply side of the equation. rent control in argentina was essentially just that you had to give 3 year leases and you had to accept rent in pesos (which is losing value). It wasn’t a cap on rental prices.
So, you’re a landlord in a country where inflation is crazy, and you have to give someone a 3 year lease……well 3 years from now I could be losing money on that rental agreement.
So, they listed their rents high to hedge against inflation, or just didn’t rent them out at all. Others sold their properties, or listed them on things like AirBnB.
Now that’s gone, so there are more rental properties available and costs go down.
As the old saw goes, a price is a signal wrapped in an incentive. People who previously had cheap rents under rent control now have an incentive to downsize to save money, which also frees up supply.
So rent control does things to both the supply side and the demand size.
If there aren’t price caps, people will build more housing. If I need to invest $1m to build an apartment building with 10 units, I may be willing to do so if I can rent for $2000/mo each, but not if I’m capped at $1000/mo since I would lose money. and the older apartments vacated by my new tenants probably are more affordable than the new units I built, for those who cannot afford my new building’s rents.
Also, you may see situations where people give up now oversized units. Say some elderly woman still living in a 4BR apartment that was necessary when she had a husband and 4 kids, but is unnecessary now except the rent controls make it way cheaper for her to stay put than relocate to a more appropriate sized unit and allow a young family to rent the space they need.
Some of these restrictions were so annoying to deal with that people who owned an apartment they could rent either didn’t rent it at all, lived in it themselves or did something else with it.
For example in my US apartment the previous owners just sold the building because they are almost 70 and didn’t want to deal with all the effort anymore. It had nothing to do with the money side of things because they were making good money either way.
So in Argentina if owning and renting out an apartment is suddenly less effort and headache than more people may try to rent out their apartments.
Latest Answers