Milei’s reforms and their effects

For many people in Buenos Aires it has become an unusual sight: for several months now, signs with the inscription “Alquila” or “Vende” have been hanging on many houses and apartments in the Argentine capital. They had disappeared for years: there were hardly any owners offering their properties for rent or purchase.

That has changed in the past few months: the number of properties offered for rent has almost doubled this year, according to a statistical survey by the Association of the Real Estate Industry (CI). According to the Chamber of Notaries, the number of land register entries has risen to its highest level in six years.

There are three reasons for the boom in rental apartments

There are three reasons for the sudden boom in the apartment and house market. They are all related to decisions made by the liberal President Javier Milei, who has been in office for almost ten months: the president has simplified and deregulated rental law and, among other things, abolished the rent cap. In addition, banks have been granting mortgage loans again since April. And the government has issued an amnesty for black money. Anyone who officially deposits their undeclared and therefore untaxed money into an account by the end of October does not have to pay a penalty – if, among other things, they use it to buy a property.

Before the end of last year, the President also abolished the 2020 Rent Act in a large legislative package. With this, the previous left-wing government tried to secure affordable housing for poorer people in the midst of the corona pandemic. The law made dismissals difficult. Rental contracts had to have a minimum term of three years. The rental price could only be agreed in pesos and only adjusted to current inflation every twelve months.

With inflation rising to almost 300 percent per year since 2019, this was a losing proposition for landlords after just a few months. They preferred to leave the apartment empty or just rent it out temporarily. The result: By mid-2023, a seventh of all apartments in Buenos Aires were unoccupied. According to the Research Center for Economic, Social and Urban Development (Cedesu), around 200,000 apartments were empty in Buenos Aires in 2022, almost 50 percent more than four years earlier.

Anyone who had an old contract benefited from the devaluation

Due to the Rent Act, it was hardly possible for new tenants to find an affordable apartment: in anticipation of inflation-related devaluation, the landlords set the initial rents so high at the start of the contract that they became unaffordable for many potential tenants. However, anyone who had an old contract benefited from the devaluation.

With the new rental law, contracts can now be concluded in dollars or pesos. There are no minimum terms and the adjustment to currency inflation can be freely negotiated. Inflation has been falling since the beginning of the year. But it is still over 200 percent in twelve months.

Milei’s abolition of rent controls and other regulations confirms economic theory, observes the North American libertarian economic institute Cato: “The supply of rental apartments is increasing and rents have fallen,” says Ryan Bourne, professor of public understanding of economics at Cato.

Nevertheless, the increase in rents is dramatic for many tenants: in Buenos Aires, for example, the rent for a two-room apartment has risen by 184 percent, according to the real estate information service Reporte Inmobiliario. In provincial cities, rents rose by an average of 277 percent, almost tripling. The reason: “The supply of rental apartments is lower in the interior of the country,” says Germán Gómez Picasso from Reporte Inmobiliario. “There has been less construction there for years, and the deficit of rental apartments is increasing every year.”

The rent increases drive tenants out of their apartments

Many tenants have to move out of their apartments and look for cheaper apartments because they can no longer afford their apartments amid the crisis and the general rising prices for services. As the Milei government cut subsidies for public services, tariffs for transport, electricity, gas and water have risen by 370 percent since the government took office. The poverty rate has risen by eleven percentage points to 53 percent of the population in one year.

However, the sharp increase in rental prices also represents a correction of market distortions: since 2019, according to the Radar Inmobiliario information service, real estate prices have fallen by 45 percent in real terms (i.e. after deducting inflation). In mid-2023 they were at the 2004 level in real terms. Rents are now falling again due to the increased supply: rent adjustments are below the monthly inflation rate.

What is now crucial for further normalization on the housing market is whether the increasing demand for rental apartments also leads to the construction of new apartments. The construction cranes that dominated some districts just a few years ago have disappeared from the cityscape of Buenos Aires.

The statistics for the construction industry have so far only shown a weak recovery in construction activity: there are as few construction companies as there were last in 2006. The number of employees is at a historic low. However, according to surveys by JP Morgan, cement sales have increased month on month since March. In August, the number of approved new construction projects increased significantly for the first time in two years.

The market seems to be anticipating increasing demand from property buyers. Since April, Argentine banks have been granting mortgage loans to home buyers for the first time in ten years. A typical 20-year loan with a loan amount of $250,000 costs between 3.5 and 8.5 percent interest per year – plus inflation, which is currently 237 percent per year.

Real estate loans would be a nightmare for Europeans

That would be a nightmare for European property buyers – but Argentinians are betting that inflation will continue to fall below Milei and with it installment payments in the future. For many, it is the first chance in a long time to get their own property through financing. A path that was closed for many years.

The banks give out real estate loans because they don’t have much other choice. Their income from high-interest bonds has collapsed since the central bank cut the key interest rate from 133 percent a year to around 50 percent since Milei took office. The monetary authorities want to prevent the financing costs of national debt from continuing to rise and from having to print new money.

This meant that the banks lost an opportunity to make money: they had previously lent money to the state at ever higher interest rates. This enabled them to earn high returns for a long time. Now they have to earn their money again in the classic lending business.

In addition, the tax amnesty increases the available liquidity on the local market. The “blanqueo” (roughly: “whitewashing”) of black money is to run in three stages until the middle of next year, with the penalties gradually increasing. However, anyone who invests their re-legalized money in Argentine government bonds or stocks will not have to accept any discounts. The same applies to real estate.

You bought a house with a bag of cash

The Milei government expects that Argentinians will be able to recover around $40 billion of their black money and integrate it into the legal money cycle. Under the last market-friendly president, Mauricio Macri, more than $100 billion was legalized in 2016.

The tax amnesty is also intended to help normalize the real estate market. “Argentina is the only country in the world where you can buy an appliance in 12 interest-free installments, but a house with a bag of cash,” Gaston Rossi, director of Banco Ciudad in Buenos Aires, told Bloomberg.