Commentary
Argentina is having a moment. It’s a victory for the free market. A new libertarian president and former economics professor removed rent controls as part of a massive
liberalization of the state when he took power in December. The result in the housing market, counterintuitively for some, is more housing at cheaper rents.
At the same time the new president, Javier Milei, is decreasing the interest rate, cutting public spending, and taming inflation.
Inflation fell from over 25 percent monthly when Milei took over, to about 4 percent in May, where it stayed. He brought down the
interest rate to 40 percent from 133 percent over the same period, which will free capital for more investment, jobs, and housing starts.
In 2020, the prior government imposed some of the world’s strictest
rent controls. The controls required minimum
three-year tenancy contracts and imposed a cap on annual rent increases at the lower of wage growth and inflation. Deposits were capped and limits were imposed on how often rental increases could be negotiated. Rents had to be denominated in
pesos. This regulatory stew worked no magic for renters or landlords given high inflation. One way landlords and tenants had previously adjusted to inflation was through rental increases
every few months, or denomination of rents in U.S. dollars less subject to inflation. Those creative workarounds all ended in 2020 by government fiat.
The response over the next few years was predictable for a free market economist like Milei. Many landlords evicted tenants, stopped maintenance to nudge them out or recoup losses, and then took their units off the market.
Homelessness increased in the context of the pandemic. Almost
one in seven homes was vacant by 2023.
Landlords tried to sell their properties to new homeowners who might not have the maintenance skills or capital to keep them up. The poor could not as easily afford deposits to buy the homes they previously rented. Other landlords put rentals into more expensive short-term AirBnBs, which resulted in higher rents for the poor. As the supply of regular rentals fell, prices for the few apartments remaining rose by an astonishing
170 percent of inflation in 2020, the year the rent controls went into effect.
While a small percentage of the population benefited from rent controls in the short term, they were tragic for almost all renters in the long term, as in 2018 and 2019, real rents had actually fallen. A black market developed, and regular rental prices rose to levels that
predicted future inflation.
Enter
Milei. At campaign rallies, he famously brandished a chainsaw to symbolize what he planned for the country’s inefficient regulations. When he removed rent controls, landlords and renters could again
freely negotiate the length of their tenancies, the price and currency in which rent was paid (including the U.S. dollar), and how rents would be adjusted over time. Within half a year, the positive effects confirmed Milei’s libertarian economic theory. Rental supply skyrocketed by
170 percent, and inflation-adjusted rent prices fell by 40 percent. This was a win-win for landlords and renters.
Milei had noted that some will feel pain before feeling the
benefits of the new economic policies he calls “shock therapy.” A few had to pay higher rents, or move from large apartments in prime locations that they could no longer afford. Some did not want to pay in U.S. dollars when asked. That all caused small
protests that added to others of larger proportion that addressed the many other reforms.
But, for most renters, and the broader economy, ending rent control helped. Milei also removed restrictions on steel and other construction imports, which will decrease construction costs and assist a building boom. The result? More jobs, housing, and economic growth. Free markets allow more efficient allocation of apartments to those who need them most and can afford to pay. That incentivizes people to work, including in the building trades, which increases the supply of housing in the most desirable locations, and brings prices down further.
Milei’s belief in individual freedom is paying off. He took a stand against authoritarian overreach by former Argentine governments, including in their socialist and military varieties. He represents a new freer approach in Argentina, which suffered under years of economic mismanagement. Individual freedom in the case of jettisoning rent control untangles what became a sclerotic rental market to dynamically allocate apartments more efficiently among all people, not just the few who happened to benefit from controls. Milei has done all this while pushing down interest rates and inflation, which is a win for democracy and all Argentinians.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
