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Argentina Scrapped Its Rent Controls. Now the Market Is Thriving - The Wall Street Journal
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September 24, 2024
President Javier Milei’s fiscal ‘shock therapy’ yields lower rents overall, but some people feel squeezed
By Ryan Dubé and Silvina Frydlewsky / Photographs by Irina Werning for WSJ
BUENOS AIRES—For years, Argentina imposed one of the world’s strictest rent-control laws. It was meant to keep homes such as the stately belle epoque apartments of Buenos Aires affordable, but instead, officials here say, rents soared.
Now, the country’s new president, Javier Milei, has scrapped the rental law, along with most government price controls, in a fiscal experiment that he is conducting to revive South America’s second-biggest economy.
The result: The Argentine capital is undergoing a rental-market boom. Landlords are rushing to put their properties back on the market, with Buenos Aires rental supplies increasing by over 170%. While rents are still up in nominal terms, many renters are getting better deals than ever, with a 40% decline in the real price of rental properties when adjusted for inflation since last October, said Federico González Rouco, an economist at Buenos Aires-based Empiria Consultores.
Milei’s move to undo rent-control regulations has resulted in one of the clearest-cut victories for what he calls “economic shock therapy.” He is methodically taking apart a system of price controls, closing government agencies and lifting trade restrictions built up over eight decades of socialist and military rule in an effort that has upended the lives of many Argentines.
In Buenos Aires—a city dubbed the Paris of the South for its broad avenues and cafe culture—many apartments long sat empty, with landlords preferring to keep them vacant, or lease them as vacation rentals, rather than comply with the government’s rent law.
In 2022, there were some 200,000 empty properties in Buenos Aires, up 45% from 2018, according to a report by Cedesu, a Buenos Aires-based policy group that focuses on urban development. Finding an affordable apartment under the rent-control law was difficult.
Aldana Oliver spent about 18 months looking for a place to rent when she left home for the city of La Plata to study dentistry.
“There were few places to rent and those available were very expensive,” said Oliver. After rent control was scrapped, she quickly found a studio apartment for about $200 a month. “I found something really nice. And I got a good price,” she said.
Many new contracts—now permitted in dollars as well as pesos—stipulate rent increases every three months, real-estate agents and tenants say. That has made housing costs unaffordable for some people already struggling to pay higher food and utility prices, said Gervasio Muñoz, who represents an association of tenants in Buenos Aires.
Romina Misenta, a 40-year-old teacher, said rent on her small apartment increased almost threefold when her previous contract ended.
“My situation has worsened a lot,” she said. “I would be paying a lot less in rent if the previous law was still in effect.”
Still, rental prices appear to be stabilizing. Monthly price increases are now at their lowest rate since 2021 as more apartments become available, according to Zonaprop, Argentina’s largest real-estate website.
The Milei administration has also scrapped price controls on staples such as milk and sugar. The president lifted controls on cooking gas, removed export controls on beef and cut government requirements to import steel, hoping to ease construction costs.
And he ditched the restrictions he said made renting an apartment an odyssey that hurt those it was trying to help.
Critics of Milei say he is deepening the economic pain of the working class. And while he remains popular, some polls show his support eroding. In August, he had a 45% approval rating, down from nearly 60% earlier this year, according to pollster Giacobbe Consultores.
“By freeing up prices, it’s very difficult for all these people, including us, to get to the end of the month,” said Amalia Roggero, whose soup kitchen in La Plata has experienced a surge in people seeking food.
Milei, a libertarian economist, long warned Argentines that his free-market changes would initially make conditions worse before they got better as he slashed public spending to tame inflation. He said it was necessary to unravel tight economic controls he inherited from the previous, left-wing Peronist government, which implemented price controls on some 50,000 products from food to clothing as part of its Fair Prices program.
Milei says his measures are delivering results. He is projecting annual inflation of 18% next year, down from the current 237%, one of the world’s highest rates, as he works to tame the never-ending fiscal deficits at the root of Argentina’s decadeslong economic turmoil.
But the government still faces substantial challenges. Bringing inflation down even further after being stuck at roughly 4% a month in recent months will be difficult, with little room for more spending cuts amid demands to restart public works and increase pensions and wages, economists say.
“They inherited a disastrous economic situation, and getting out of this mess will take time,” said Alberto Cavallo, a professor at Harvard Business School who has studied Argentina’s price controls.
At least for now, the housing market is thriving. Opponents of price controls say Argentina is a cautionary lesson for officials from the U.S. to Europe who have looked to curb surging housing costs with rent controls.
President Biden recently called for some rent increases to be capped at 5% annually. And Vice President Kamala Harris said that if elected president she “will take on corporate landlords and cap unfair rent increases.”
González Rouco, the economist, warned against such plans. “With good intentions or a law,” he said, “you can’t modify how markets work. They have their own dynamic.”
In Argentina, the national rental law approved in 2020 during the left-wing government of President Alberto Fernández required a minimum three-year contract. The rents had to be paid in pesos, the country’s volatile currency, which lost about 90% of its value against the dollar on the black market during Fernández’s 2019-to-2023 term. Rental prices could be increased annually but at a rate set by the central bank, which took into account inflation and worker salaries.
With Argentina’s history of high and volatile inflation, property owners took steps to protect themselves from inflation that would quickly eat into the rents if they were forced to wait 12 months before raising prices.
They instead jacked up the starting price for new leases, making it far too expensive for many people to sign a new contract. That resulted in the average rent for a two-bedroom apartment in Buenos Aires costing 27 times the price of 2019, according to Zonaprop.
Some landlords tried to sell. Others listed them on short-term rental sites such as Airbnb, where tourists paid in dollars. Landlords also focused on renting to people within their social circle, resulting in a big black market with informal rental deals that skirted government rules, economists say. Many apartment owners simply mothballed their properties.
“You’d never see rental signs in windows,” said Mariano García Malbrán, the president of the chamber of real-estate companies, describing how rent controls led to shortages. “And properties that were listed with real-estate companies would be gone in a day or two.”
Write to Ryan Dubé
www.buysellba.com
