The Daily Telegraph - Saturday - Money
Rents dive in Argentina as ‘chainsaw man’ scraps cap
Rent prices in Argentina have fallen 20pc since Javier Milei, the new president nicknamed the “chainsaw man”, scrapped a “destructive” cap for landlords in December.
Under four-year rent controls, landlords fled the market in their thousands and rents increased 286pc, fuelling an even deeper housing crisis.
Since the legislation was scrapped, rent prices have fallen and the number of properties that are available for rent has increased significantly, according to the Argentine Real Estate Chamber.
The drastic change in the country’s rental market adds further weight to arguments that even though they aim to reduce the costs for tenants, rent caps often have the opposite effect.
The rules – introduced in 2020 by Alberto Fernández, the president at the time – included a mandatory lease term of three years and a limit on rent to an average growth rate of the consumer price index and the wage index.
Even before the new legislation came into force, the effect was significant. Unsure of how much and when they would be able to raise rents, landlords increased their prices to try and avoid being caught out.
Worsening the situation, 45pc of landlords decided to sell their properties in the wake of the announcement – reducing the amount of accommodation on offer and further pushing up prices.
In the 12 months to February 2024, rents increased 286.7pc in Buenos Aires, according to rental platform Zonaprop. There was also a currency aggravation. While many use dollars in Argentina as a hedge against the peso that has been losing value, the law mandated that rental payment must be in the local currency. Over the past five years the Argentinian peso’s value against the dollar has decreased by about 95pc.
Many landlords turned their properties into short- term lets that were excluded from the rules, offering them on platforms such as Airbnb. The number of properties available on Airbnb in the capital rose from 10,000 in 2019 to 29,500 on Feb 1 this year.
The impact of these measures created an even deeper housing crisis as inflation rose from 50pc in 2020 to the current rate of over 250pc.
However, since the policies were ditched the housing market has shown signs of improvement. In mid-January, just weeks after the repeal, the number of homes available had rebounded.
“Until about 20 days ago there was zero supply, we did not reach 50, 60 homes; and as of January 2024 there were more than 7,000 on offer,” said Enrique Abatti, the president of the Chamber of Property Owners of the Argentine Republic.
For many economists the market resurgence has demonstrated the inefficacy of rental caps.
Ryan Bourne, of the Cato Institute, a think tank, said: “By shifting more financial risks and hassle onto landlords, tenancy rent controls encourage property owners to get out of the rental market. Argentina’s high inflation exacerbated these risks, meaning they were particularly destructive. But the same underlying economics applies everywhere.”
Scotland has had rental controls in place since 2022, introduced by Nicola Sturgeon, the first minister at the time. A 3pc rent cap was placed on existing tenancies leading landlords to sharply increase rents in between tenancies.
As a result, rents for new lets in Scotland rose by 12.7pc in the year to July 2023, compared with the UK average of 10.5pc, according to property website Zoopla. In response at the end of last year the SNP quietly announced plans to close the loophole.
Prof Christine Whitehead, of the London School of Economics, said: “Caps help those who are already in legal accommodation – ie the cap is enforced. If costs rise rapidly landlords will try to find other ways to cover these costs – so avoidance, evasion or lower investment may cause problems.
“As the UK’s economy is far less volatile than that of Argentina, would a cap work more effectively here? Better but not well unless it is accompanied with more positive policies.”