MEXICO CITY (AP) — Mexico City’s legislature on Thursday approved the most ambitious rent law since the 1940s, limiting rent increases to the previous year’s inflation rate.
Rents in the vast city of 9 million were effectively frozen in the 1940s, and remained so for decades for older buildings. Those controls were largely lifted in the 1990s.
The new law also requires landlords to register all leases with the city. It was unclear whether the new law would allow landlords to charge more for improvements to their properties.
Mexico City, like many other cities around the world, had received complaints that rents were skyrocketing due to digital nomads and short-term rentals. But it seems that this only affected a handful of tourist attractions neighborhoods near the center of the sprawling metropolis.
“Many people with higher incomes are willing to pay more for housing, both by buying it and renting it,” said lawmaker Martha Soledad Avila Ventura of the ruling Morena party. “In addition, short-term rentals on the internet have made it a matter of profit, resulting in the expulsion of the capital’s traditional residents.”
In recent years there has been a shortage of land and saleable properties a cutthroat real estate market in which house prices rose significantly faster than inflation.
The new law, however, does not address the city’s real problem: a housing shortage. Lawmakers estimate that there are about 2.7 million homes and apartments in the city, but that about 800,000 more are needed.
The city has long relied on private developers to build homes, so it is unclear whether the new law will discourage investment in housing.
Rent control has a complicated history in Mexico City. Under the fixed-rent laws of the 1940s, inflation rapidly decimated rents in real terms, resulting in people paying pocket change for apartments. Landlords gradually abandoned buildings because rental income was not enough to pay for even routine maintenance.
Old rental laws also made it difficult to evict tenants for non-payment and gave some tenants the right of first refusal if the units they lived in were put up for sale. That distorted the rental market, with many landlords preferring to rent to foreigners, who were seen as less likely to rely on those protections.
In the 1950s and 1960s, the government built several large housing complexes in the city, but rarely for rental. These apartments were almost always offered for sale to new buyers as soon as they were finished.
The current city government has no concrete plans to build large numbers of rental homes itself, nor does it have the money or the construction knowledge to do so.
Furthermore, almost all new construction is out of reach for the poorest citizens. The minimum wage in Mexico is about $1.50 per hour, and the median wage is only about $4 per hour.
President-elect Claudia Sheinbaum, also of the Morena party, has said she hopes to implement a rent-to-own program. Poorer tenants would pay reduced rent, and if they were granted a government housing loan, the rent they previously paid would be applied to the purchase price.
She also wants the federal housing agency, which is funded by payroll deductions that fund individual accounts for each worker, to start building housing itself. Right now, the agency functions largely as a financing agency, making loans to buy homes built by private developers.
