Report Nº: 102524/08/2023
Promoted by legislators of “Frente de Todos” and “Juntos por el Cambio”, Congress is about to pass a law to “save” UVA mortgage loan debtors. The result will be fewer mortgage loans for those with no home. Another example of the strong consensus endorsing the wrong policies.
UVA mortgage loans are intended for the purchase of homes. In order to enable the long term, they provide for the capital to be updated by inflation. They were created in 2016 and expanded until the 2018 crisis. In the context of inflationary acceleration, the update of the credit installments tended to grow higher than wages. For instance, the value of the installments of a credit taken in 2017 is today 20% higher compared to wages.
The national Congress is preparing to pass a law to address the issue. In simplified terms, the law project foresees the creation of a new tax on financial activity to subsidize UVA mortgage debtors. On the one hand, when inflation exceeds salaries, it is established that the installment will increase in line with salaries. On the other hand, if the installment exceeds 30% of the debtor’s income, the term will be extended up to 25% of the original term in order to reduce the amount of the installment. In both cases, the bank that granted the loan will be compensated with the proceeds of the new tax.
The question to be asked is what impact these types of measures have considering the chronic and severe housing deficit suffered by Argentina. For this purpose, it is useful to go for the census data. According to this source, it is observed that:
These data show that between 1991 and 2001, when Argentina went through a period of price stability that allowed the expansion of mortgage loans, the percentage of families that had access to homeownership increased significantly. Since 2002, with the change in the monetary regime, the legal breakdown of mortgage contracts, and the return of high inflation, long-term credits again tended to disappear. Without mortgage loans, most families can’t buy a house. For this reason, the latest census reveals a major social setback with a percentage of families owing their home lower than 30 years ago.
In the context of high and chronic inflation, the only way to generate conditions for long-term loans is with installment indexation. Changing the terms of private contracts by law is politically attractive to ingratiate with current debtors. But it is detrimental to those who do not own a home, since there will be fewer mortgage loans. The tax to compensate banks for the change in loan contracts that Congress is about to approve will increase the already high taxes on the financial sector. The result will be less credit at higher costs. The underlying logic is to favor a small group, which has a well-organized claim, at the cost of harming society as a whole.
In other countries, stability and respect for contracts allow families to access home ownership with mortgage loans that extend over several decades. This makes installments similar to the cost of rent. It is a virtuous circle where rents go down because they compete with a wide offer of long-term mortgage loans. In Argentina, on the other hand, the conditions for mortgage loans are broken and, with the Rental Law, the conditions for more housing to rent are broken. The result is doubly detrimental. Fewer families have access to home ownership and less supply of housing for rent.
As in other public policy areas, there is no “rift” in housing either. On the contrary, a solid consensus prevails around misconceptions. It is very illustrative that this bill, which is now in the Senate, was promoted and approved by both Frente de Todos and Juntos por el Cambio legislators. This alerts that the first step to overcoming decadence is to make explicit and question these wrong consensuses in order to implement better public policies.
