Are rents about to skyrocket?

[LuckyLuke]

Howdy folks,

I've been crunching some rent numbers and wanted to run them by you fancy lot to see if any of you see some holes in my math regarding rent adjustments.

My wife & I rented a house in Neuquen starting at $500,000 on 9/1/23 with adjustments per the ICL every 6 months.

The first adjustment looked something like this:

	Rent	ICL	Adjustment %	Blue rate	Dollar Rent
9/1/2023​	$ 500,000	-	-	$ 735	$ 680
3/1/2024​	$ 870,000	147%​	74%​	$ 1,030	$ 845

The dollar during this time had only appreciated 40% and the adjustment was 74%. The resulting net 34% loss of the value of the dollar was reflected as a higher cost of rent in dollars.

Seeing as the highest IPC inflation was during December - March, I assumed that the 74% adjustment reflected the worst of the "devaluation" Melei had enacted after being elected.

Fast forward to today and I began to do some math for the upcoming 9/1/24 rent adjustment. I was not at all prepared for the new ICL numbers. It's a shocking 249%!!

Moreover the government has recently committed to intervening in forex markets to preserving a brecha of 35% - 45 % above the oficial. Seeing as that brecha is already there, this would basically keep the dollar moving the same as the 2% oficial crawling peg.

This makes the next rent adjustment look something like this:

	Rent	ICL	Adjustment %	Blue rate	Dollar Rent
9/1/2023​	$ 500,000	-	-	$ 735	$ 680
3/1/2024​	$ 870,000	147%​	74%​	$ 1,030	$ 845
9/1/2024​	$ 1,953,150	249%​	125%​	$ 1,440	$ 1,356

Now assuming that the government economic plan is working fantastically and the ICL index (IPC + RIPTE) begins to magically decelerate at the same rate that it has been accelerating and that the government has maintained it's dolar blue brecha at the oficial crawling peg of 2% it still begins to paint some horrifying numbers:

	Rent	ICL	Adjustment %	Blue rate	Dollar Rent
9/1/2023​	$ 500,000	-	-	$ 735	$ 680
3/1/2024​	$ 870,000	147%​	74%​	$ 1,030	$ 845
9/1/2024​	$ 1,953,150	249%​	125%​	$ 1,440	$ 1,356
3/1/2025​	$ 3,886,769	198%​	99%​	$ 1,613	$ 2,410
9/1/2025​	$ 6,743,543	147%​	74%​	$ 1,806	$ 3,733

I'm very curious, what do you all think about these numbers? Will the ICL decelerate as rapidly as it accelerated? Does the government have sufficient artillery to suppress the brecha now that it has plugged it's fiscal holes? If so, are we seeing an iceberg ahead for any expats renting?

 

[LuckyLuke]

Small correction...I've updated the ICL numbers to show the current acceleration and equal deceleration.

	Rent	ICL	Adjustment %	Blue rate	Dollar Rent
9/1/2023​	$ 500,000	113%​	-	$ 735	$ 680
3/1/2024​	$ 870,000	147%​	74%​	$ 1,030	$ 845
9/1/2024​	$ 1,953,150	249%​	125%​	$ 1,440	$ 1,356
3/1/2025​	$ 3,388,715	147%​	74%​	$ 1,613	$ 2,101
9/1/2025​	$ 5,303,339	113%​	57%​	$ 1,806	$ 2,936

 

[dlish]

I don’t think it really matters. If it gets too expensive, re-negotiate the lease. It’s not like people are lining up to shell out $3000 for your house in Neuquen. The economy is in recession and that means fewer renters for nice homes.

 

[Bajo_cero2]

You described very well the planified soviet economy of Milei. What can go wrong?

 

[Rich One]

Thanks excellent piece of work . How do you obtain the projected ICL values and Blue rate ?

The projected iceberg you describe, will affect locals as well as expats. We are all aboard the Titanic. Milei´s measures are tantamount to shuffling the deck chairs .

 

[Macanudo]

I've been crunching some rent numbers and wanted to run them by you fancy lot to see if any of you see some holes in my math regarding rent adjustments.

Rent	ICL	Adjustment %	Blue rate	Dollar Rent
9/1/2023​	$ 500,000	-	-	$ 735	$ 680
3/1/2024​	$ 870,000	147%​	74%​	$ 1,030	$ 845

The dollar during this time had only appreciated 40% and the adjustment was 74%. The resulting net 34% loss of the value of the dollar was reflected as a higher cost of rent in dollars.

I don't see a higher cost for rent in dollars. I think if you check the blue rate at the first of each month since the beginning of your contract you might find that your average rent per month in dollars has been less than the original $680 per month. For example, at the beginning of Feb. the blue rate was around 1200, making your rent in dollars around $416. Your rent for August, using 1450 blue rate is $600. In March, April, May and June you paid a bit more than $680, but most of the other months of the contract you paid less. https://bluedollar.net/informal-rate/

 

[Rich One]

What about the prediction for 9/1/2035 US$2936

 

[LuckyLuke]

Thanks excellent piece of work . How do you obtain the projected ICL values and Blue rate ?

The projected iceberg you describe, will affect locals as well as expats. We are all aboard the Titanic. Milei´s measures are tantamount to shuffling the deck chairs .

The projected ICL numbers are merely an assumption that the future ICL rates will slow at the same historical speed it's increasing...something I somehow doubt.

The blue rate projections are based on the governments intended intervention of maintaining the existing brecha at no more than the crawling peg pace (2%). This also remains to be seen if Melei can put a lid on that pressure with intervention.

One might argue that the country is in a wage/rent inflationary spiral. It may explain why the RIPTE is still high despite a falling IPC.

Those that have employment contracts with salaries indexed to inflation may yawn at all this, but those that don't (expats included)...may be in for some pain.

 

[LuckyLuke]

I don't see a higher cost for rent in dollars. I think if you check the blue rate at the first of each month since the beginning of your contract you might find that your average rent per month in dollars has been less than the original $680 per month. For example, at the beginning of Feb. the blue rate was around 1200, making your rent in dollars around $416. Your rent for August, using 1450 blue rate is $600. In March, April, May and June you paid a bit more than $680, but most of the other months of the contract you paid less. https://bluedollar.net/informal-rate/

You are correct, the first month of the adjustment is the highest in USD. Each month as the blue rate increases, the USD amount gets less until the next adjustment.

This is assuming the USD rate is actually moving. Something it didn't do for 4 months (1/21/24 - 5/21/24).

The point of all this is that it is a high probability that the blue rate will not be moving at the 20% monthly ICL that landlords are using to adjust rents (at whichever interval is in your rental contract). The difference between the two is coming out our pockets as higher USD rents.

 

[arvest]

If you're earning your income in dollars why don't you just make a rental contract in dollars too and forget about worrying over this