From San Francisco to London to Hong Kong, demand has caved for rental apartments during the pandemic, bringing prices down, too.
But in one global metropolis, rents are surging like never before. Tenants in Buenos Aires City are seeing apartment prices soar 67 percent from a year ago to an average of about 35,000 pesos a month (US$377). Rent is now rising twice as fast as paycheques, and well ahead of other prices in one of the largest cities in Latin America.
“We never imagined rents going over 60 percent, nobody planned for this,” says Leandro Molina, commercial director at ZonaProp, one of the top online real-estate platforms in Argentina. “It’s the biggest increase on record.”
Some of the reason for this is Argentina’s surging inflation, driven in part by the government’s excessive money printing last year to finance Covid-19 social spending.
But it’s also the unintended consequence of rental reform passed by the national government last year that was meant to stabilise prices and protect tenants. Starting in July, Argentina’s Central Bank will publish an index that indicates how much rent can legally increase. And since landlords in Argentina's capital don’t know how much they’ll be allowed to raise prices later on, they’re jacking up rents on new contracts now before the index takes effect, according to local realtors.
The new law also stipulates that rental contracts will be stretched out to three years with price increases limited to once a year. Currently, a common rental agreement lasts two years, and landlords often increase prices every six months as part of the terms outlined in the contract. But with so much economic uncertainty in Argentina, landlords and tenants have traditionally negotiated how much rent would increase.
Armando Pepe, head of the Buenos Aires realtors association, says the changes benefit tenants so much that many owners simply stopped renting out, removing supply and leading to even higher prices. Many are still reeling from a government-mandated rent freeze that just expired in March after 12 months.
Asked for comment on the rent control reform, a government spokesperson pointed Bloomberg CityLab to remarks by President Alberto Fernández on Thursday. The Peronist leader didn’t speak about the law, but said he’d talk to Housing Minister Jorge Ferraresi about a ban on evictions that recently expired, shortly before new lockdown measures began.
Like most major cities, Buenos Aires isn’t immune to the impacts of the pandemic, especially following a three-recession in Argentina. Some affluent Argentines have ditched apartments and fled to posh, gated communities outside the city. Many Argentines are grappling with rising unemployment and Covid-19 lockdowns that closed schools for an entire year.
Caught in the mess are renters like Laura, a 30-year old in the capital. Laura and her boyfriend ended a yearlong apartment hunt when they moved from an upscale neighbourhood to a middle-class area of the city. They got a third room to use as a home office, but their rent doubled to 70,000 pesos and they left behind 24-hour security – a key sacrifice amid rising crime and a 42 percent poverty rate. Dwindling apartment supply left tenants like Laura scrambling.
“You’d visit a place but it would be already reserved, it was really difficult just to put down a deposit,” says Laura, who requested her last name not be published. In the new neighbourhood, “I’m a little afraid at night.”
The rent reform debacle marks the latest chapter in one of the world’s most twisted housing markets. In Argentina, home sales – and increasingly rents – are priced in US dollars even though the vast majority of society makes pesos, a currency that’s lost 80 percent of its value since 2017. Mortgage rates hover near 30 percent, and sales have collapsed. Most homes these days are purchased in all-cash deals.
Some politicians are now trying to dismantle the rent legislation. Álvaro González, a lawmaker in the lower house, brought a new bill forward to reverse the changes. González proposes keeping much of the technical detail, such as how much landlords can demand in deposits, but removing the key reforms: the length of the contract and the rent-controlled annual increase. He wants to scale it back to two years and semiannual rent hikes, negotiated between landlord and tenants.
But González, an opposition legislator, isn’t promising a victory. The ruling party controls both chambers of Congress and the presidency.
“What you aimed to solve with the changes to the rent law, which was meant to provide relief for renters, is actually just complicating the situation,” says González. “Since you can’t negotiate the rent increase anymore, property owners are hiking rents to protect themselves from inflation.”
by Patrick Gillespie, Bloomberg