Inflation Leading to Supply and Demand Problems in Argentina

There is a weird phenomenon at the hostel that I am currently staying in.  Many of the guests are long-term residents.  And by "long-term," I mean not weeks or months, but years after years.  Some of the residents are foreign students at local universities doing their proper college degrees.  And they tell me that for some reason, it is cheaper for them to stay in a hostel, even with their inflated daily rates, than it would be to find a shared apartment in a decent part of Buenos Aires.

Walking around the city, I can confirm their statements to a certain degree.  In most neighborhoods in the city, there are plenty of housing blocks, but they generally consist of either higher-end condominiums or family-owned tenements.  Few buildings can be considered structurally appropriate for renting out to individuals, even as shared residences.  The lack of supply in the housing market has created a unique condition for hostels being filled with long-term guests, a phenomenon not seen elsewhere on the continent.

But increasing the supply of apartments is not inherently difficult.  Structurally unread buildings can be subdivided quickly to provide small rooms that are suitable for renting out to single occupants.  They certainly would not be that conformable, but if they are cheap enough, people in hostels would lap them up, as at least those accommodations would provide more privacy and a sense of permanent residence than anything remotely possible in the open hostel environment.

Thus, it can be assumed that the supply of apartments for rent to financially constrained individuals is not increasing because the owners of the buildings see little financial incentive to do so.  Either they cannot earn enough money to cover the costs of restructuring and managing small Flats carved out of big buildings, or they themselves are financially constrained to the point that they cannot afford to do the restructuring of the buildings in the first place.

I speculate the reason is more latter than former.  Over the last few days in Argentina, I heard many stories of locals complaining about heady inflation figures in an economy that is not growing particularly fast.  People's incomes are not keeping up with the increase in costs, making salaries little more than what are needed to cover daily living/survival expenses.  As a result, more people are living several generations under one roof, unable to find enough money to move out of the family homes.

In terms of housing then, the situation puts enormous pressure on the utilization of existing housing owned by the extended families.  To put more clearly, big family homes passed down from previous generations are now occupied by more people than they  previously were, as single-generation flats become multi-generation ones.  As such, what used to be available space in these passed down buildings that can be rented out are now occupied by family members and thus off the market.

As available space to rent declines, the prices of remaining apartments for rent increase in tandem.  The high prices of rent is not helped by the fact that there is little available land in Central Buenos Aires that can still be developed.  Five- or six-story buildings stand shoulder-to-shoulder as far as the eyes can see, making it impossible to create new building blocks unless they are located far from workplaces and universities.  This is not to mention that farther-out neighborhoods like the famed La Boca are crime-ridden, connected downtown by commuter trains that many also think are not especially safe.

The problem of inflation also puts constraints on the municipal government's ability to resolve the issue with better urban planning.  With inflation eating away available resources, the city cannot initiate creation of new business districts on the outskirts of the city that takes off housing pressures in the historical downtown area, making it unnecessary for the likes of students to find cheap housing closer to center of towns.  Projects that move whole institutions geographically simply are too costly due to inflation.

Same goes for the idea of building bigger, more well-equipped universities.  The students are stuck looking for private housing, and end up staying in hostels precisely because not enough dormitories are available for all.  If the city is able to create dedicated university towns outside the city (much as China is so fond of doing nowadays), there would be enough cheaper land to build enough buildings to house all students.  Of course, as mentioned above, inflation prevents such ambitious projects from taking place as well.