Mexico City Parliament passes strongest rent control since the 1940s, limiting the rise in inflation

MEXICO CITY (AP) — Mexico City lawmakers on Thursday passed the most ambitious rent control law since the 1940s, limiting rent increases to the previous year’s inflation rate.

In the vast city of nine million, rents were essentially frozen in the 1940s, and for older buildings they remained so for decades. In the 1990s, these controls were largely lifted.

The new law will also require landlords to register all leases with the city. It was unclear whether the new law will allow landlords to charge more for improvements to their properties.

In Mexico City, like many other countries, there have been complaints that rents have skyrocketed due to digital nomads and short-term rentals, but it seems that this has mainly affected only a handful of tourists. District near the center of the sprawling metropolis.

“Many people with higher incomes are willing to pay more for housing, both to buy and to rent,” said lawmaker Martha Soledad Avila Ventura of the ruling Morena party. “In addition, short-term rentals on the Internet have become a matter of profit, which has led to the displacement of the capital’s traditional residents.”

In recent years, a shortage of land and saleable properties a highly competitive real estate market in which real estate prices rose significantly faster than the inflation rate.

However, the new law does not address the city’s real problem: the housing shortage. Lawmakers assume that there are around 2.7 million houses and apartments in the city, but around 800,000 more are needed.

The city has long relied on private developers for housing construction and it is unclear whether the new law could hinder investment in housing.

Rent control has a complex history in Mexico City. Under fixed-rent laws in the 1940s, inflation caused real rents to fall rapidly, resulting in people paying pennies for apartments. Landlords gradually abandoned buildings because rental income was not enough to cover even routine maintenance.

Old rental laws also made it difficult to evict tenants for non-payment and gave some tenants a right of first refusal when the apartments they lived in were put up for sale. This distorted the rental market, as many landlords preferred to rent to foreigners who were considered less likely to invoke these protections.

In the 1950s and 60s, the government built several large housing complexes in the city, but rarely for rental purposes. These apartments were almost always offered for sale to new buyers after completion.

The current city government has no concrete plans to build its own rental housing on a large scale, nor does it have the necessary money or construction know-how.

In addition, almost all new construction is unaffordable for the poorest residents. The minimum wage in Mexico is about $1.50 an hour and the average wage is only about $4 an hour.

President-elect Claudia Sheinbaum, also a member of the Morena party, has said she hopes to introduce a rent-to-own program. Poorer tenants would pay a reduced rent and if they get a government housing loan, the rent previously paid would be credited towards the purchase price.

She also wants the Federal Housing Authority, which is funded by payroll deductions that go into an individual account for each worker, to start building housing itself. Currently, the authority functions mainly as a financing agency, issuing loans for the purchase of housing built by private developers.