Argentina Ended Rent Control. Guess What Happened Next.
A free market for housing is one that benefits both renters and landlords.
It should go without saying, but the United States became the world's most-prosperous large nation by generally allowing the market economy to work. By contrast, Argentina has remained a poor backwater thanks in part to its far-reaching price controls. So it's ironic that "free-market" America needs to learn a key economic lesson from down south, at least on the issue of rental housing.
Argentina's governments have since the 1940s reflected to some degree the Perón-ista worldview, named after Juan Domingo Perón and his authoritarian-populist government. Last November, however, the country's voters elected a flamboyant bushy-haired TV personality. The election was met with chagrin from most of the usual suspects.
"Javier Milei, a volatile far-right libertarian who has vowed to 'exterminate' inflation and take a chainsaw to the state, has been elected president of Argentina, catapulting South America's second-largest economy into an unpredictable and potentially turbulent future," reported Britain's left-wing Guardian. There's a lot of nonsense there to unpack.
For starters, Milei is a true market advocate and is nothing like the authoritarians to whom the newspaper compares him. But at least the Guardian noted a key reason for his victory: Argentina faced 140 percent annual inflation rates, a collapsing economy, and poverty levels above 40 percent. The Associated Press reported that Argentina's government has spent recklessly and previously defaulted on its debt. These problems have persisted for decades.
Since taking office, Milei imposed a policy of austerity (cutting public employment and pensions, paring social-service spending, etc.), which led to protests and economic convulsions, even though the president warned that fixing the economic mess required tough medicine. While his overall policies have yet to turn the corner, Argentina has seen enormous benefits from one Milei policy: removing rent control.
Those of us who oppose such controls have for years pointed to reams of economic evidence proving that rent control reduces the amount of overall housing (by 15 percent in San Francisco, according to federal research) and reduces the quality of housing. While it reduces rent for some tenants, it creates scarcity in the housing market and dramatically increases prices for available units.
The way to fix California's toughest housing markets is to remove—not increase—rent control. Argentina's experiment confirms that conclusion.
Last fall, Milei eliminated what The Wall Street Journal termed one of the world's "strictest" rent-control laws. Per its report: "The Argentine capital is undergoing a rental-market boom. Landlords are rushing to put their properties back on the market, with Buenos Aires rental supplies increasing by over 170 percent. While rents are still up in nominal terms, many renters are getting better deals than ever, with a 40 percent decline in the real price of rental properties when adjusted for inflation."
With price controls, businesses flee the market because they cannot get a sufficient return on investment. As a result, supply for whatever is controlled falls even as demand stays steady or rises. That's why price controls on gasoline lead to long lines at gas stations. If prices can't adjust to reflect supply and demand, then people simply can't get the items they want.
Sure, removing controls initially raises prices—but then new businesses jump into the fray to capitalize on the market and the boost in competition then reduces prices. By contrast, tightening up government price controls just leads to increasing levels of scarcity and misery.
Here's another interesting fact from Argentina's rent controls, per the Journal: "In Buenos Aires—a city dubbed the Paris of the South for its broad avenues and cafe culture—many apartments long sat empty, with landlords preferring to keep them vacant, or lease them as vacation rentals, rather than comply with the government's rent law." The newspaper said that owners of many of those 200,000 units are now putting them on the market.
I've reported on a similar situation in San Francisco, which has more than 52,000 vacant units. Many owners would rather keep them empty than rent them out under the city's rent-control terms—and they fear that once they allow strangers to rent their apartments that they'll never be able to get them out given the city's strict tenant laws. Instead of addressing economic reality, San Francisco acted like Perónistas and passed an Empty Homes Tax.
Back in the United States, President Joe Biden proposed a national rent control, an idea that's economically illiterate and probably unconstitutional. In California, the same progressive activist group that sponsored two failed ballot measures expanding rent control is back again with Proposition 33.
California already has rent controls, but this would allow cities to pass extreme ones, including vacancy controls that forbid owners from raising rents between tenancies. California voters have the evidence before them. They can head down a path of scarcity and misery. Or they can let the market work. And it does work, as renters suddenly found many competitively priced apartments in Buenos Aires.
This column was first published in The Orange County Register.
