Note: A version of this article ran in the Wall Street Journal on 9/9.
Four years after the near collapse of the Argentine housing market, President Javier Milei’s repeal of the socialist government’s disastrous rent control law has led to a surge in the nation’s housing supply.
The rent control repeal was just one part of President Milei’s “shock therapy” plan announced in December 2023. The strategy tackled the country’s bloated public sector—eliminating government jobs, suspending government contracts, removing subsidies, and slashing spending in a bid to reign in the country’s triple-digit inflation and revive its failing economy.
The jury is still out on many of President Milei’s policies, but the verdict on his rent control repeal is decisive. In the six months since the repeal, available rental units in Buenos Aires increased by nearly 200% and rental prices have dropped between 20 and 30%, according to Argentine brokers. The deregulatory effect was almost immediate.
Source: Frederico González Rouco based on DGEyC and INDEC via Mises Institute.
Argentina’s strict rent control law was passed in 2020. In a bid to provide renters more economic security, landlords were locked into tenant-controlled, three-year minimum leases and rent increases were capped. The policy consequences were swift and brutal. Forty-five percent of landlords elected to sell their properties rather than continue renting them out. The remaining properties were either converted to short-term rentals or had their rental increases front-loaded to hedge against inflation. The average rent for a two-bedroom apartment soared from nearly 18,000 pesos per month ($300 USD) at the end of 2019 to 334,000 pesos ($600 USD) in December 2023, well beyond the 210,000 pesos per month ($378 USD) if the rate had tracked inflation.
In December 2023, Milei explained his rationale for repealing rent control and the other changes he would bring to Argentina’s stagnant, socialist economy: “Ideas that have failed in Argentina have failed all over the planet.”
Milei was not just posturing. Economic theory on rent control is continually vindicated by empirical evidence and supported by broad consensus among economists. Nearly a century of documented case studies by economists F.A. Hayek, Friedman and Stigler, and others across the political spectrum decisively expose rent control as destructive public policy, both theoretically and empirically.
Harvard professor Jason Furman, who served as a top economist for the Obama administration also came down hard on the idea: “Rent control has been about as disgraced as any economic policy in the tool kit.”
Opposition to rent control is about protecting people from unintended consequences, like housing shortages, under-investment, tenant discrimination, and falling property values. Rent ceilings don’t relieve housing shortages; they exacerbate them. Secured tenants in a rent-controlled environment may not give up their rent-controlled units for decades, even when their housing needs change. Meanwhile, the units fall into disrepair as landlords decline basic maintenance or upgrades since they cannot recoup their investments through rental increases. Rent-controlled units that cannot be converted into owner-occupied units are eventually abandoned, leading to blighted and abandoned neighborhoods.
In a market economy, whenever there is a “shortage” of any product, rationing occurs by price, and the price is determined by the choices of many consumers “bidding” for the product by their purchase choices at any given price point.
Rationing will happen. As economists Milton Friedman and George J. Stigler point out, “Everything that is not as abundant as air or sunlight must, in a sense, be rationed.” If rationing is not done by price (consumer-driven free market), then it will be done by force (government-driven central planning).
Meanwhile, national rent control in the U.S. is having its moment in the sun after President Biden proposed federal rent control measures. In an equally breathtaking display of economic sabotage, one of the presidential candidates has also vowed to “take on corporate landlords and cap unfair rent increases.”
Of course, those decrying the steep increase in rents and evictions in many U.S. markets exclude mention of the Covid-fueled federal and 43 state-enforced eviction moratoria. Due to emergency executive orders in many states, landlords went months or years without being able to evict non-paying tenants. Combined with general inflation, migration, and housing regulations a significant increase in rental rates occurred—both to recoup costs and hedge against existing government laws that make eviction very time-consuming and expensive.
Rental markets are complicated. Rent control proposals come in various forms and the consequences will vary equally. The more restrictive the policy, the more drastic the effects. Rent control is arguably the worst idea we have for fixing the housing problem. Swedish economist Assar Lindbeck wrote, “In many cases rent control appears to be the most efficient technique presently known to destroy a city — except for bombing.”
Each generation must apparently relearn the tragic lessons of government rent control, after some upbeat politician has the brilliant idea to light the house on fire again to stay warm. No matter how many times we try, we cannot outsmart Econ 101.