Mexico City’s Rent Freeze Plan Could Disrupt Market: Banamex

While discussions on rent control continue through the announced Bando 1 policy, Banamex warns that frozen rents have previously brought unintended consequences. From 1942 to 2001, Mexico City implemented a rent freeze policy that sought to shield tenants from inflation and economic hardship. While well-intentioned, the measure ultimately led to severe distortions in the housing market, urban decay, and the depopulation of central neighborhoods, says Banamex.

The city saw a rent freeze that began in 1942 under President Manuel Ávila Camacho as part of a broader wartime economic package, explains Banamex. Aimed at stabilizing housing prices amid high inflation and economic uncertainty, the decree fixed rents at 1941 levels across residential, commercial, and industrial properties in what was then the Distrito Federal. 

At its peak in the 1950s, the rent freeze covered about 100,000 housing units, nearly 20% of all rentals in the city. However, the longer it remained in place, the more damaging its effects became, says Banamex. The regime was not formally lifted until 2001, during the administration of then-mayor Andrés Manuel López Obrador, when the Legislative Assembly failed to renew it.

The Costs of Prolonged Rent Controls

Banamex argues that economic theory predicts that rent controls, particularly price caps below market rates, produce both winners and losers. Tenants in rent-controlled units benefit in the short term, gaining access to lower-cost housing. But landlords face reduced income and thus little incentive to maintain or invest in their properties. Over time, this erodes housing quality, depresses property values, and shrinks the overall supply of rental housing, reads the study.

The bank says that the rent freezes led to a deterioration of the housing stock. By the 1990s, some rent-controlled properties had monthly rents as low as MX$0.40 to MX$10, while maintenance costs and property taxes rose by an average of 10% annually. Banamex adds that Centro Histórico saw its population fall from 300,000 in 1950 to just 100,000 by 2000. Moreover, rental housing construction lagged severely, growing only 1.2% annually between 1950 and 1980, adds the bank. 

Bando 1: Learning From the Past?

On July 16, 2025, Mayor Clara Brugada introduced Bando 1: For a Livable and Affordable City with Identity and Local Roots, a housing initiative that includes capping rent increases to inflation, protecting tenants from eviction, and creating a Tenant’s Ombudsman Office. Backed by President Claudia Sheinbaum, the policy responds to growing concerns over gentrification and rising rents, which have increased roughly 10% annually since 2020, MBN reports.

Bando 1 aims for equity through regulation and public housing expansion. It introduces concepts such as:

• Defining “zones of real estate tension.”

• Regulating short-term rentals.

• Creating a “Fair Rent Law” and Index of Reasonable Rental Prices.

Yet, critics argue that such policies can create unintended consequences. An analysis from 2018 of the Brookings Institution, “What Does Economic Evidence Tell Us About the Effects of Rent Control?”reports that while rent control may benefit incumbent tenants in the short run by offering insurance against displacement and stabilizing communities, its long-term effects tend to be negative for housing markets.

Key takeaways from the Brookings Institution report include:

• Rent control reduces affordability over time by discouraging new development and leading landlords to withdraw units from the rental market (via condo conversion, owner-occupation, or neglect).

• Rent control can cause inefficient allocations, such as small families occupying large units and vice versa, as tenants hold onto below-market apartments.

• Maintenance declines as landlords lack the incentive or ability to reinvest, leading to housing stock deterioration.

Unless legally restricted, rent control can push landlords to shift properties from long-term rentals to short-term platforms like Airbnb, reducing available housing, up to 15% in high-demand, tourist-heavy areas, according to AHURI research.

A Divided Response

The Mexican Association of Real Estate Professionals (AMPI) argues that rent controls have failed in cities like Berlin and Paris, all of which saw plummeting housing investments or rising legal disputes following such policies. AMPI highlights that Mexico City suffers from a housing supply deficit of over 350,000 units, and that tackling this shortage requires structural reforms, not just price caps. The organization proposes five alternatives:

1. Discounted land sales for developers offering affordable rentals.

2. Fast-track permitting for projects with over 40% low-income housing.

3. Government-backed rent guarantees to protect vulnerable tenants.

4. Vacancy taxes on long-unoccupied units.

5. A Rent Observatory to provide transparent market data.