Argentinian landlords flock back to the market after rent controls removed

If proof were needed that rent controls lead to reduced landlord incomes, rental housing shortages, increased rents and deteriorating housing stock, this is it.

Despite overwhelming evidence against, wherever controls have been applied, it hasn’t stopped London Mayor Sideq Khan repeatedly calling for London’s 2.7 million tenancies to be subject to rent controls. He’s been calling on the Government to urgently introduce rent controls in the capital for several years now. It seems the new Labour government have taken a similar stance to the Tories, they are against it, at least for now! But, the negative evidence from countless rental control schemes hasn’t stopped governments in Scotland and other UK regions introducing, or working towards, some form of rent control.

High tax rates and swinging anti-landlord regulations have had a similar effect to rent controls in England, on rental shortages and rent levels. As is the case now in many centres in England, tenancies are so scarce that tenants are queuing in line, and even forging references, to secure scarce new lets at high rents.

It needn’t be this way

In Buenos Aires Landlords have been rushing to put their properties back on the market since the government removed rent controls. Rental supplies have increased by over 170% according to the Wall Street Journal (WST).

Given Argentina's long-term alignment with socialist ideology, particularly during the Peronist years, rent controls were a strong feature of the country’s rental landscape.

For years, Argentina had imposed one of the strictest rent-control regimes in the world. As with all rent control initiatives tried to-date, Argentina’s policy was meant to keep homes affordable, but instead, the opposite had occurred - landlords took flight, rents soared, and rentals became a scarce commodity.

There was a change of government in Argentina under President Javier Milei. He represents a radical shift to libertarian politics. When he took office in December last year his policies freed up the economy, advocating a drastic reduction in government regulations. Slowly but surely these policies are tackling the dire housing problems and roaring hyperinflation.

Scrapping rent controls

The new Argentinian government scrapped rent control laws, alongside price controls in other parts of the economy. The result has been a rapid turn-around in the economic fortunes of South America’s second-biggest economy.

The resultant market boom in rentals, with landlords rushing to put their properties back on the rental market, has been to the benefit of one large and grateful group – tenants.

Supply of rentals on the market has increased drastically, while rents have started to come down from their inflated levels, many are now 40% below their previous levels.

Removing Argentina’s rent control regulations is part of an economic programme that shifts policy away from over regulation in what the new government has termed “economic shock therapy.”

By removing many parts of a price-controlled economy, bureaucratic government agencies and the removal of decades of socialist and military rule, Argentina is seeing the benefits of a reviving economy.

Have rent controls ever worked?

Responding to Sadiq Khan’s rent control pledge, the IEA’s Head of Political Economy Dr Kristian Niemietz has said in his response to Generation Rent:

“Rent controls have never worked anywhere. They do not just fail to solve the problem they are intended to solve; they also create new ones of their own. This is one of the very few issues on which economists of all stripes – including stridently left-wing economists such as Paul Krugman – are in complete agreement.”

Rent controls are often criticised for the negative effects the put on a housing market, including:

Reducing supply: Landlords may not rent out their properties if rents are forced down, which reduces the number of rental properties available.
Increased wait times: Rent controls can lead to long waiting lists for homes. One example is in Stockholm, where the average waiting time for an apartment is over 11 years.
Worker mobility: tenants in controlled housing stay put and don’t move jobs, as well as blocking housing which makes other workers take long commutes.
Housing is misallocated: Rent controls encourage people not to downsize when they otherwise would. It leads to a misallocation of existing properties.
Lower quality housing: Rent controls can lead to a decline in the quality of rental housing stock as landlords won’t spend money to maintain standards when they make too little profit.
Subletting: Tenants are encouraged to sub-let as they can achieve far higher rents than they pay themselves.
Black market: Illegal black markets develop where lets may be auctioned off.
Artificially high rents: Rent controls distort the market so the price signals no longer apply, and rents overall are kept high.
New building is discouraged: Rent controls can dis-incentivise developers to embark on new investment in housing stock.

The argument for rent controls is that it helps existing tenants in areas with fast-rising rents. But these policies distort the market instead of allowing supply and demand to reach equilibrium rent levels. In the short term it may appear they are working but this distortion over time has the above effects.

Buenos Aires is sometimes called “the Paris of the South” with its wide boulevards, broad avenues and a cafe culture. Under the old regime, apartments would sit empty, because their owners logically kept them empty rather than let them at low rents.

According to the Wall Street Journal, in 2022 there were something like 200,000 vacant rental properties in Buenos Aires, a figure that increased by around 45% from 2018. It was difficult for tenants to find vacant apartment buildings in the city.

In London too!

Does the story sound familiar? Even without rent controls, and the new Labour government has ruled them out, at least for now, tenants are finding it difficult to secure accommodation at a reasonable price – rents are through the roof.

Why is this?

As the conventional economic argument goes:

Demand for rental properties in London is undoubtedly high, driven by a strong labour market and as tenants have started to return to the city as the effects of the pandemic begin to wear off. Immigration must surely be playing a part in this.

Supply is low because landlords have been and are being dissuaded from investing in new rentals. The supply of rental properties in London is low, and the stock levels are particularly low in more affordable boroughs. Tax rules and an increasingly challenging regulation regime for private residential tenancies, and now with the coming introduction of the Renters’ Rights Bill, is persuading many landlords to leave the private rented sector.

With demand high and supply low the inevitable result is rising rents which are really hurting renters. Many of them want to save for a deposit to get on the housing ladder as first-time buyers, but their outgoings each month, due to the high rent levels, are preventing this.

It’s got to the stage where in some locations, competition among tenants to secure a new tenancy vacancy is fierce. There are often multiple applicants into double figures scrambling for a chance to rent.

The rental market in London is still difficult, even though the supply of rental properties is starting to loosen up slightly, but the Renters’ Rights Bill, due to become law in 2025, is now scaring even more landlords off.

There are no rent controls - as yet - in England, and Labour has promised not to introduce them, but in the busiest locations there might as well be. That’s because all of these other factors are conspiring to have the same effect on the rental market as rent controls would have.