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What Mexico City Can Learn from Buenos Aires on Rent Control

Housing shortages and rental affordability are one of the top challenges for policymakers anywhere — particularly when hurting lower and middleincome residents — and Mexico’s capital isn’t alone in trying to tackle the problem with price controls. From Berlin to Barcelona and Amsterdam, other rich cities and nations have tried similar or even more stringent approaches. In July, the White House floated a plan to impose 5% rent caps in about 20 million apartment units. Yet hardly any of these strategies end up creating more affordable housing. This is because they try to contain soaring prices with measures that limit supply, which sooner or later means fewer houses on the market and extra price pressures.

It’s Econ 101. The new Mexico City administration that takes over on Oct. 5 should recognize this policy’s limits and focus on what it can control: cutting construction red tape, reducing permits bureaucracy and their associated corruption, loosening zoning codes to allow for higher buildings and social housing and promoting more credit for essential workers. Those are all measures that should lead to building more units. The evidence that supply restrictions in the housing market end up backfiring is compelling. Take the case of Buenos Aires, which in 2020 enforced a new law that sought to give tenants enhanced protections:

 

The result is a renewed boom in the city’s rental listings, which have grown by 170% since the decree, while prices adjusted by inflation fell an estimated 40%, according to Federico González Rouco, a Buenos Aires-based economist with consultancy firm Empiria. “Good intentions aren’t the best way to legislate because the market reality always ends up prevailing,” he told me. “Incentives change the world, not, not laws.”

That’s a valuable lesson for any housing policy. Mexico doesn’t have the economic imbalances of Argentina, and its property markets is different, but authorities should nonetheless take note of Buenos Aires’ case and make sure they don’t repeat these mistakes. With the new legislation, rent increases in Mexico City won’t exceed the previous year’s national inflation, which in the case of 2023 ended at 4.66% — meaning that landlords effectively lose any chance of real gains, in turn reducing incentives to invest in property upgrades. Under the previous law, the hikes were capped at 10%. Unsurprisingly, developers aren’t happy; they argue that the measures will hurt investment. The result, as we saw in Argentina’s capital between 2020 and 2023, may well be that landlords jack up the initial value of rent contracts to cover themselves for expected smaller increases in the future, or that they simply charge extra for associated costs like monthly expenses. Others might opt to sell their houses or put construction projects on hold and invest instead in government notes that still offer close to 11%, double the rate of inflation.

 

As part of the new legislation, congress also calls on the city to build social housing to promote cheap rents for lower-income citizens—as if that weren’t already in the job description of any local authority, particularly in one of the world’s largest cities. Attacking a loose concept like gentrification is rhetorically satisfying, politically effective and certainly less time-consuming than designing and executing an expensive grand plan for housing expansion, which may take years or even decades. But there are no shortcuts: If Mexico City — or any other top metropole — is serious about solving their worrying rental problems, they need to build more and restrict less.