Effects of Regulating the Brokerage Commission in the Rental Market: Evidence from Buenos Aires

Abstract

In the rental market, one of the measures that governments take to benefit tenants is to exempt them from their obligation to pay the real estate commission, transferring this obligation to landlords. Recent experience in the City of Buenos Aires from the sanction of a law of this type has characteristics of a quasi-experiment, allowing the study of the causal effects of this policy on rental prices and related contractual conditions. In order to identify this effect, I propose exploiting the differences in the geographic discontinuity along the city limit. I find an increase in average rents of a magnitude consistent with the theoretical result that owners transfer the value of the commission to tenants but distributed throughout the contract. In other words, it is consistent with a financing effect, where owners finance tenants in the payment of the commission. I also find suggestive evidence indicating owners changed their security deposit requirements, probably to finance the commission.