In response to strict rent control laws, the city’s landlords kept 200,000 properties vacant, created a black market by only renting within their social circle or they turned their units into short-term rentals. The result was soaring rents.

Sound familiar? You may be surprised to learn that this narrative isn’t about New York City but Buenos Aires.

Recently, Argentina’s President Javier Milei scrapped the national rental law as part of his economic reforms, which eliminated most government price controls, as highlighted in the Wall Street Journal.

The market response?

• The rental supply rose by more than 170% in Buenos Aires
• Rental prices (adjusted for inflation) declined by 40% in one year

Rent Regulation is a Band Aid, Not a Fix

Like Buenos Aires, New York City has imposed price controls on privately owned apartments for decades, capping rents far below market on the City’s nearly 1 million rent regulated units. For the City’s 1.1 million market rate units, competition is fierce among newcomers, young people and others entering the market, which drives up rents for this limited supply. The vacancy rate for rent stabilized apartments was 0.98% in 2023 and for market rate rentals 1.84%, the 2023 NYC Housing and Vacancy Survey shows.

As I explored in a previous Forbes article, the Housing Stability and Tenant Protection Act of 2019 (HSTPA) distorted the rental market even more by eliminating incentives to renovate rent stabilized units upon vacancy, which has resulted in owners leaving as many as 43,000 apartments vacant. HSTPA also did away with income verification, prohibiting an owner’s ability to deregulate units that crossed a statutory high-rent threshold upon vacancy or when a tenant’s income reached $200,000 or higher in the preceding two years.

Just by reversing some of the new regulations introduced by HSTPA, landlords would be encouraged to renovate empty units, which would increase supply by returning thousands of existing apartments to the market. Income requirements would ensure that families that need affordable apartments get them, as would converting units to affordable housing, which would enable low income tenants to get rent vouchers subsidized by the government.

New York City: Limited Supply Pushes up Rents

The Buenos Aires example illustrates that rents fall when an abundance of housing floods an under supplied real estate market.

We saw this law of economics closer to home during Covid when 305,465 residents abandoned New York City between 2020-2021, which resulted in median rents for free market apartments falling by 16.6% to $3,000 in Manhattan and listing inventory jumping by 170.0% to 12,447, according to the January 2021 Elliman Report. These were extreme circumstances, no question, however, the result of the drop in demand was directly correlated with the drop in rents.

When the City reopened and the population began returning, instead of encouraging new housing development lawmakers allowed the 421a tax abatement to lapse in 2022 and didn’t approve a successor for two years. As a result, new permits plummeted by 76% year-over-year to 16,348 units in 2023, according to housing data compiled by the New York City Rent Guidelines Board.

Fast forward to October of this year, the limited housing supply has pushed New York City rents up by 5.3% year-over-year, the highest jump in the country, according to the Yardi Matrix Multifamily National Report-October 2024. The median October rent in Manhattan rose to $4,295, the October 2024 Elliman Report shows.

The Sunbelt: Oversupply in an Unregulated Market

In contrast, rent growth in the unregulated Sunbelt has slowed or even declined in some key areas due to the construction of new housing.

Although the population of Metro Austin-Round Rock-Georgetown increased by 6%, or 137,725 residents between 2020 and 2022, Austin has experienced some of the largest declines in rents, largely due to extensive multifamily construction, which has increased the supply of housing.

This year, 24,500 market rate and 3,700 affordable units are projected to be delivered in Austin, which saw rents in October drop by 5.5% year-over-year, the biggest decline in the country, the Yardi Matrix report showed. Likewise in Phoenix, 22,000 market rate and 2,100 affordable units are expected in a city where rents have declined 2.4% year-over-year.

Rent Regulation Still Has Its Cheerleaders

Despite the negative impact of rent regulation on the housing supply in Argentina and New York City, the concept still has its disciples.

Rent regulations were introduced in 24 states this year, according to the National Multifamily Housing Council (NMHC), and are already in effect in Oregon and California. However, California voters in November rejected Proposition 33, which would have expanded rent control in the state. Last summer,President Biden pushed legislation that would have required owners with 50 or more units to cap rent increases at 5% or “risk losing federal tax benefits,” an initiative that will presumably disappear in the Trump Administration.

As Sharon Wilson Géno, President, NMHC, noted in a recent newsletter, “History teaches us that the two markets in the U.S. where rent control has been implemented long term—New York City and San Francisco—have for decades been the most expensive and constrained rental housing markets in the country. Long term, over regulation has proven to constrain housing supply and limit renter choice, especially for those who struggle most to get housing.”

Final Thoughts

The experience of Buenos Aires demonstrates that eliminating strict rent-control laws has a tremendous effect on housing supply and, as a result, reduces rental prices. Policymakers should carefully analyze New York City’s 1 million rent-stabilized units. A combination of renovating vacant units, converting them to market rents and re-stabilizing them at a higher level; re-implementing income requirements; and incentivizing conversions into affordable housing could provide the city with the necessary boost of units catered to the appropriate tenant populations categorized by income.