Why it is increasingly difficult to find housing in Latin America

For many people it has become an impossible mission to find a home to rent due to the escalation of prices in Latin America and other parts of the world.

Scarred by the wave of global inflation, wages have lost purchasing power, while the cost of credit has risen to record levels.

As it is more expensive to buy a home with a home loan due to the frenzied increase in interest rates, many prefer to rent and that pushes the price of rents up.

Although the largest increases have occurred in the last year, the upward trend began at the end of the covid-19 pandemic.

“A part of the high prices is explained as a recovery after its fall during the pandemic,” Vinicius Oike, an analyst at Grupo QuintoAndar, told BBC Mundo.

“Prices went down and up following the shape of a U,” he says.

But there are cities, he points out, where values ​​have risen much higher than a simple recovery.

According to the data handled by QuintoAndar, considering the prices published in the notices of online platforms, between March 2022 and March 2023, the average cost of renting an apartment rose 126% in Buenos Aires, 12% in Mexico City, and in Sao Paulo 11.2%, in Quito 10.9%, in Panama City also 10.9% and in Lima 6.3%.

With year-on-year inflation of almost 109%, Argentina is the most affected country in the Southern Cone.

“It is very difficult for me to pay the rent,” says Paula Serenelli, a 35-year-old head of household who lives with her son in Villa Lugano, Buenos Aires.

“Last year they raised it to 90% and this year another bigger increase would come. This is outrageous.”

Something similar happened to Gastón Levy, 38, who lives in Palermo, an area of ​​Buenos Aires with high purchasing power where it is not uncommon for income to exceed the rise in inflation.

“They raised me 87%, which is good if you look at it with respect to inflation, which was higher,” he says. “But other people fall into the typical 60% increase every six months.”

Although there is a law that regulates the rental market, “in practice it does not work,” says Gervasio Muñoz, president of the Tenants Association. “Rentals in Argentina are the law of the jungle.”

Experts predict that as long as inflation in the country does not drop, rent prices in Buenos Aires will not drop either.

In the rest of the largest economies in the region, the inflationary escalation is hitting families hard, but far from the dramatic levels experienced by Argentina.

In Mexico, where inflation has been hovering around 10%, the price of rents in the capital has followed a similar trend or a little higher than the general increase in the cost of living.

“Rents have adjusted between 10% and 15% on average,” says Leonardo González, real estate analyst for the firm propiedades.com, referring to the increase in values.

The increase in prices is explained, according to González, by the general increase in inflation, a lower demand for mortgage loans (which makes more people seek to rent) and a growing preference for homes with more space to work from home.

In very specific neighborhoods of the capital, where people with greater purchasing power live, the increases in the price of rent have risen to levels of up to 40%, says the expert.

This escalation is related to the arrival of “digital nomads” who, in many cases, receive salaries in dollars.

The most central neighborhoods are “gentrifying,” says Óscar García, who lives in Colonia del Valle and whose apartment increased 30%.

“I’m looking to rent and it’s difficult,” he says, because many foreigners have arrived who can pay high prices and there are homes that are rented exclusively for Airbnb.

Expert projections suggest that the price of rent in Mexico City will continue to increase.

“2023 is going to be characterized by an upward trend in prices. We project an average increase of 12%,” says González, although he warns, it depends a lot on what happens with general inflation in the country.

In other Latin American capitals, the increases in rental prices have been smaller.

When the lease contract is renewed in Colombia, the price should rise according to the inflation rate registered in December of the immediately previous year.

If that rule were always met, then current values ​​should experience a 13% rise, which was the CPI (Consumer Price Index) for December 2022.

However, in practice, there are negotiations that usually do not follow this trend.

The problem, point out those who are dedicated to the rental business, is that homeowners often lose out by lowering prices, especially when renting is essential for their income.

“For many people, what they receive from the rent is their pension,” says Liliana Báez, an independent real estate agent in Bogotá.

“We have had to make agreements with the tenants and not raise the full CPI,” he explains.

The other side of the coin is the tenants who cannot afford to pay a 13% increase in the rental price.

Finally, the negotiation is what defines the real price increase, says Sergio Olarte, chief economist at Scotiabank Colpatria.

Although the National Administrative Department of Statistics, DANE, has not published rental price data broken down by city, Olarte estimates that Bogotá has followed the trend at the national level, with an increase close to 7%.

The behavior of prices in the future will depend to a large extent on what happens with general inflation in the country.

Among the megacities of Latin America is Sao Paulo, the largest commercial and financial center in Brazil.

There the value of the leases has risen by about 11% in the last year, according to the company Grupo QuintoAndar.

After the pandemic, there was a kind of property boom in Sao Paulo, both in the sales market and in the rental market.

People, especially the youngest, have turned to getting the so-called micro-apartments, which can be up to less than 30 square meters and are usually built near metro stations.

These micro-apartments, despite having minimal living space, are expensive because clients prefer to pay for a good location that allows them to avoid traffic jams.

And looking to the future, experts suggest that its value is likely to continue to increase due to the lack of land available to build on in the most desirable areas.

If there is little available land and high demand, the result is an increase in sales and rental values.

Despite the political and economic crisis that Peru is going through, prices in the rental market in Lima have not fallen.

The rise is lower compared to other Latin American cities, but the average trend continues to rise, despite the large differences that exist between one district and another.

“During this year all the districts are at prices above the pre-pandemic,” explains Luciano Barredo, Marketing Manager of the Grupo Navent company.

When analyzing the prices offered in rental ads, the average rise in the last year in Lima reaches 6.3%.

However, Barredo points out, the value published in the advertisements tends to drop as a result of the negotiations.

So, keeping that in mind, the rise in Lima is closer to 2.8%, explains the specialist.

This phenomenon, he argues, is influenced by factors such as general inflation -which closed at 8% last year-, the drop in home sales due to high interest rates on mortgage loans, the exchange rate and the political context. of the country that has generated uncertainty.

Added to this panorama is the fact that “in Metropolitan Lima there is very little land available and construction materials have risen in price a lot after the pandemic,” says Barredo.

In this context, “it is almost impossible for prices not to continue rising.”

With an inflation level close to 10% in April, the value of rentals has not followed this trend in the capital of Chile.

“The rental price grew much less than inflation,” says Daniel Serey, manager of Studies for the real estate portal TOCTOC.

“For people’s pockets, the square meter of rent rose 2.1%, but if we look at it from another point of view, the price actually fell,” says Serey.

How is this divergence explained? The analyst argues that in Chile many rents are set in relation to how much a unit of measurement called the Unidad de Fomento, better known as the UF, rises or falls.

So, “if we correct the rental price for inflation and convert it to UF, the price actually fell 9.5%.”

However you look at the numbers, the point is that in Santiago the value of rents has not risen as is happening in other capitals.

“The rental price is not going up right now because the housing situation is complex,” says Serey.

“The housing market in Chile is under very strong pressure because there is a very large housing deficit. We are experiencing a phenomenon of an explosion of informal housing, of the camps,” he adds.

“The economic situation is more slowed down. Fewer people buy homes and the only thing left for them is to resort to the rental market,” says the analyst.

As long as construction companies continue to create new projects, prices will be contained, he adds. But if the industry stops building homes at the rate it has been building up to now, prices are going to go up.

In the case of Latin American cities where the value of rents has risen rapidly, Vinicius Oike projects that “the market should cool down” this year and next, to the extent that economic growth will be lower.

Much will depend on how the combination of growth, inflation and interest rates evolves in each country, in addition to the economic news that may arrive from the external front.

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