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
It’s always more complicated than ELI5. But here’s the general idea.
Rent control, on paper, tries to deal with something making rent cost too much for the citizens who need to live in a place. If a busy downtown area gets very popular, rents can increase very fast and cause a lot of people to have to rapidly move so far away they can’t get to their jobs. Without the workers, the places making that area busy can’t stay open, so it’s important to strike a balance. So rent control tries to make it illegal to raise prices too fast and may even set a maximum price.
However, most people don’t build or rent properties for fun or charity. They do it to make money. Sometimes, in addition to an area being popular, factors like being crowded or material costs mean it costs more to build new properties. In a worst-case scenario that can mean if a person builds new apartments it will be illegal for them to charge enough rent to pay for the building costs. In that case, people don’t build apartments or other forms of housing.
That’s OK if you had too much housing, but generally if that was the problem you don’t need rent control. If you don’t have enough housing, you really need people to build more. But as I pointed out above, rent control can create a situation where people don’t WANT to build.
So to oversimplify, getting rid of rent control makes those people start building again. The first few waves aren’t cheaper. But as more and more housing is built, it gets more and more likely that older units have to start dropping their prices to entice people.
Is it perfect? Heck no. There’s half a dozen reasons why rent might still go up, or never go back down enough to make poor people able to live in that area again. But that also doesn’t mean removing rent control is always bad.
Economic stuff is often like a pendulum. It’s really hard to be “perfect”. The reality is usually the machine runs until we decide things cost a little too much. Then we have to do things to make them cost a little less. But doing that usually causes problems that can only be solved by doing things that make them cost more. Each of these things usually either hurts companies or citizens, and they aren’t happy when we make a change.
And the real world is often more complex than magical Economics 101 land. “Rent control” isn’t one set of laws the same in every country. You can write a set of *very bad* rent control laws that do no good for anyone. You can apply them when they aren’t needed. You can apply them to the wrong place. You can apply them for too long or not long enough. Laws that worked in one city might not work in another. Laws that didn’t work in one city might be perfect for another. The only way to find out is to take educated guesses, do things, then wait a few months to see what happens. Running a city is hard.
(There are also lots of other ways to try to deal with the problem besides rent control. They all have their own ups and downs.)
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