In his Basic Economics, Thomas Sowell makes an exhaustive case against rent controls. Sowell uses examples from New York in the 1980s to post-War Melbourne to show that, everywhere they are tried, rent controls only lead to a decline in available rentals and, consequently, a rise in rents.
But it’ll work THIS time! socialists like the Australian Greens insist. Will it, though?
As it happens, we have a contemporary counterfactual to their argument. This time, not a negative argument based on what happened when rent controls were introduced, but an example of what happens when they’re removed.
Javier Milei’s The Decree of Necessity and Urgency (DNU) was passed in December 2023. It removed rent controls and other restrictions on landlords’ rights.
After the deregulation announced by Milei, the supply of rental housing in Buenos Aires has skyrocketed and prices in real terms (discounting inflation) have begun to decline. Although it is early to draw conclusions, this could be the beginning of a new era for rental housing in Argentina.
The legislation removes much of the heavy hand of the government from the rental market, allowing for greater flexibility in agreements between landlords and renters.
For example, the decree states that the rental contracts term will be the one that the parties (landowner and lessee) have decided and, if they do not clarify it, this will be two years. This ends the minimum term imposed by the Government of Argentina previously. These new rules have allowed greater flexibility, making it easier to find a home to rent in large urban centers now, something that seemed impossible a few months ago.
In addition, this standard also allows the parties to agree to the adjustment of the rental price, without the need to use the Location Contract Index or the Own House Index that imposed these values on owners. However, tenant and owner have to agree on how often to update the contract, for which they can use any index, whether public or private.
The decree also allows both parties to agree on the form of payment or the currency used (rents can now be paid in dollars, pesos or euros). The same applies to bonds. The period of rental payments may also be agreed on (but cannot be less than monthly).
It’s not all slanted to the landlord, either. Magistrates will be able to control abusive clauses. Tenants have the right to terminate a rental contract and pay the equivalent of 10 per cent of the balance of the future rent, calculated from the date of notification of termination to the end date agreed in the contract.
All well and good, but what has been the outcome?
Rentals in Buenos Aires have doubled since the DNU was enacted – an extra 20,700 properties on the market.
Now, with the new rules, thousands of owners who previously did not rent their homes for fear of being trapped in a 'rent trap' generated by the previous regulations, they preferred to keep their homes empty.
While rents are still increasing, they are increasing less than the general inflation rate.
Although rental prices have continued to rise at a high rate, this is normal in an inflation environment that continues to exceed 200% year-on-year (although it has begun to moderate in its monthly rates). However, some indicators indicate, since rental prices are progressing more slowly than inflation prices, which would be causing real prices (discounting inflation) of rents to show a downward trend […]
From the Francisco Marroquín University and the Juan de Mariana Institute they explained in a recent note that "although there has not yet been a complete liberalization of prices, promising progress has been made in the area of the housing market, where the repeal of the Rental Law has helped to increase almost 200% the offer of apartments and houses in the City of Buenos Aires, ccontributing to reduce the real price of leases by 20%".
Over to you, Australian Greens.
