It is crazy that in Colorado we should be looking at a third world country on how to solve our affordable housing crisis. Is Colorado making the same mistakes as Argentina made in the past? What did Argentina learn that drastically lowered rental prices and increased supply? Argentina seemed to have figured out the “magic” formula to substantially resolve their affordable housing crisis but can Colorado?
First why am I even talking about Argentina in Colorado. Argentina over the years has implemented a series of steps aimed at increasing affordable housing. They have since done a complete 180 with amazing results.
What did Argentina learn about rent control?
For years, Argentina imposed one of the world’s strictest rent-control laws. It was meant to keep homes such as the stately belle epoque apartments of Buenos Aires affordable, but instead, officials here say, rents soared and supply dwindled.
Colorado’s back door rent control
Unfortunately, Colorado would be wise to take some lessons from Argentina on economics to ensure we don’t make the same mistakes. Although Colorado doesn’t per se have rent control like Argentina, two bills passed in the last legislative session are basically back door rent control as it places huge burdens on property owners and inserts the state heavily into the private property market. The laws make it very difficult to evict tenants and do major upgrades to properties in order to attract different types of tenants. Furthermore, the habitability bill makes It nearly impossible to cost effectively rent lower priced units but ironically the just cause for eviction bill makes it difficult to get rid of tenants. Below are the details of the two bills that have radically altered Colorado’s rental market.
The bill would set a seven- or 14-day deadline for landlords to repair certain issues after being notified. Landlords would be required to document all communication with tenants.
The 42-page bill would also require landlords to pay for hotel rooms in certain cases and allow tenants to withhold rent if repairs are not made. There is a lot in the 42 pages, here are some highlights:
- Minor items like a plumbing back up even if it is due to the tenant are catastrophic for the property owner: In the case of a violation, the tenant must be awarded statutory damages equal to the tenant’s actual damages and the higher amount of either three times the monthly rent or five thousand dollars, as well as any other damages, attorney fees, and costs that may be owed.
- The bill does not differentiate between minor and major items and the cause of the items. For example, the bill emphasizes mold from moisture. If the tenant continues to take a shower and doesn’t properly operate a fan then mold could occur and the owner is liable for damages.
- 42 pages of minor items: For example, the bill focuses on electrical, if an outlet is overloaded because a tenant plugs in two hairdryers at the same time, the owner is now on the hook for damages as the unit is no longer habitable.
The bill prohibits a landlord from evicting a residential tenant unless the landlord has cause for eviction. Cause exists only when:
- A tenant or lessee is guilty of an unlawful detention of real property under certain circumstances described in existing law, as amended by the bill; or
- Conditions exist constituting grounds for a “no-fault eviction”.
On the surface this bill sounds pretty innocuous until you get into the details. The real driver behind the bill is to try to prevent redevelopment and conversion into short term rentals and Selling of Properties
Colorado laws ultimately restrict supply
The adverse effect of the laws above is that ultimately supply is limited. Builders have considerable choice in where they build, they can build in Colorado or if they want to focus on the western markets they could choose, Utah, WY, ID, NM, etc… that are considerably more business friendly. This theory is not just anecdotal, I have recently seen numerous multifamily deals blow up especially because of the habitability bill and the risk it creates for large property owners. Long and short you will see Colorado follow the same trends as coastal markets where supply is ultimately limited, and if there is new supply it is targeted towards the higher end of the market or subsidized for the very low end of the market leaving a donut in the middle of the market.
What happened when Argentina relied on the free market
Now, the country’s new president, Javier Milei, has scrapped the rental law, along with most government price controls, in a fiscal experiment that he is conducting to revive South America’s second-biggest economy.
The result: 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%. While rents are still up in nominal terms, many renters are getting better deals than ever, with a 40% decline in the real price of rental properties when adjusted for inflation since last October, said Federico González Rouco, an economist at Buenos Aires-based Empiria Consultores.
Monthly price increases are now at their lowest rate since 2021 as more apartments become available, according to Zonaprop, Argentina’s largest real-estate website.
At least for now, the housing market is thriving. Opponents of price controls say Argentina is a cautionary lesson for officials from the U.S. to Europe who have looked to curb surging housing costs with rent controls.
Rent Control does not work in Colorado or Argentina or anywhere else
Colorado is heading down a slippery slope with quasi rent controls. We have seen throughout the US that rent controls do not work under any circumstances. Look no further than NY that has some of the highest rent increases in the country. As a result of rent control prices have increased exponentially while supply has fallen.
With the upcoming legislative session and even more housing related bills on the table, it would be wise for our legislators to take a lesson from Argentina: González Rouco, the economist from Argentina who studied the rent control laws, warned against such rent control plans. “With good intentions or a law,” he said, “you can’t modify how markets work. They have their own dynamic.” If Argentina can finally learn this hard lesson, hopefully Colorado can to.
Additional Reading/Resources
https://www.wsj.com/world/americas/argentina-milei-rent-control-free-market-5345c3d5?mod=mhp
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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner. He is the owner of Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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