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
From what I gather, landlords released property to the market that they were keeping vacant due to them not being economically viable under rent controls
Rents are actually up in actual pesos but adjusted for inflation are cheaper
Price is not lower. That is just propaganda. Prices triple between inflation and by removing that law (in pesos).
People struggle a lot more to get a good rent. There is a lot more demand because owners did not wanted to rent before which should make it lower prices over time. Only people with US dollars are better right now.
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.)
In Argentina an apartment would be rented and the rent was fixed for the period of the rental. Argentina has, and is suffering from rampant inflation, currently in excess of 200%, this caused landlords to pre-load the rent to allow for inflation or not rent a property.
Removing rent controls allows a landlord to increase rent during the period of the rental, thus moving the risk from the landlord to the renter. Rents appear to decrease as the landlord no longer has to pre-load the rent to allow for inflation and more property has become available as there is less risk to the landlord.
What will happen in the future as rents rise? Once scenario is that the renters will demand higher wages to pay for their increased rents thus creating a continuing inflationary spiral.
Unfortunately we will only find out if this is a good or bad policy in several years time.
Listen to the Freakonomics podcast regarding this subject. It is explained fully by a few professors there, and in detail
In the long run, all price controls become supply controls because private investors aren’t going to expand the supply at a loss to themselves.
Very expensive homes take a while to sell outside highly populated areas like the east and west coast because you are competing for someone’s business with new construction / custom home. To me, The idea of removing rent control is similar to the argument that eliminating the minimum wage= lower unemployment rates. Both may allow the free market to see prices and supply reach some equilibrium but no politician will get over the fear of voter backlash to make this sort of change. They must be seen as “doing something” to solve a problem so they can take credit for the sun rising tomorrow even if what they do does not work .
Another way to think about it: If a landlord knows that they cant raise rent over time, they will have new leases much higher
Also, renters with existing controlled rents wont move to new units when they might otherwise, because even when their current space is inadequate anymore, they enjoy the lower cost. If the renters will be subject to increasing rents overall, then there isn’t as a much a benefit in staying in their existing units, promoting more flow through the system, and freeing up cheaper units (smaller or in worse locations as those tenannts move up)
Often when there’s rent control- a landlord will decide the rent they would receive from regular tenants would be too low- so instead they keep an apartment vacant until they have a family member or good friend to rent the unit to.
Also- a lot of rent control is some form of: “rent out the unit at whatever price you want- but you can only increase the price by 3% per year”. In cases like this- the landlord just has a super high first year price- so that even if rent goes up only 3% per year- they’ll still be making money.
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