The purpose of this note is: (i) to inform about the reform passed by the congress of Mexico City on August 22nd, 2024 to amend Articles 1 Section XVII and 59 of the Housing Law for Mexico City (the “MX City Housing Law”), as well as two additions to the Civil Code of the Federal District (now Mexico City, the “MX City Civil Code”); and (ii) to provide a comparative law analysis with other countries regarding this reform.
It is important to note that these provisions have not yet been published in the Mexico City Gazette, and therefore have not yet come into force. Interested parties may access Mexican Government Official Website to review the details of the reform.
Publication and Current Content
The amendments to Articles 1, Section XVII, and 59 of the MX City Housing Law, as well as the additions to the MX City Civil Code, aim primarily to limit rent increases to the Consumer Price Index (IPC, for its Spanish acronym). Although there is already a limitation on rent increases under Article 2448 D of the MX City Civil Code, the reform restricts the allowable increase from the current 10%, by amending this article of the MX City Civil Code.
Secondly, the amendment also foresees the creation of a digital registry of lease agreements; however, it is still unclear the purpose or implications of this registry.
Lastly, the reform fosters public policies that encourage the construction of social interest housing in Mexico City, exclusively focused on rentals, in order to allow a greater portion of the population to have access to living within Mexico City.
Impact of the New Guidelines
These amendments aim to curb the rapid increase in rents, thereby limiting the migration of middle and lower-middle-class residents of Mexico City to other cities within Mexico and provide more security and stability to the real estate housing industry in Mexico City.
The most significant change is the amendment to Article 2448 D of the MX City Civil Code, which limits annual rent increases to the inflation rate reported for the previous year, in relation to the agreed-upon monthly rent; however, this amendment must set forth a clear process to ensure the enforceability of this obligation and a specific list of consequences for landlords who attempt to raise rents above the inflation.
It is still not clear if the metric for determining inflation will be that of the National Consumers Price Index (“NCPI”). Likewise, it is unclear whether the reference to inflation will be for the twelve months immediately preceding the lease renewal or that of the prior fiscal year, considering that there can be significant variations within a calendar year.
Additionally, a new subsection F has been added to Article 2448 of the MX City Civil Code, which would create a digital registry of housing lease agreements and grant landlords 30 days to register the lease. However, it does not specify whether the 30 days are business or calendar days, therefore, it could be inferred that they are calendar days, pursuant to the Administrative Procedure Law for Mexico City. Nor does it establish mechanisms for monitoring compliance with this obligation or specify the consequences for landlords and tenants who fail to complete the registration.
The amendment to the MX City Housing Law adds a Section XVII to Article 1, which incorporates the requirement that the law must also “guarantee the public production of affordable rental housing for lowincome individuals by the Government of Mexico City” which provision will encourage the government to construct social interest housing within Mexico City.
Article 59 already states that the Government of Mexico City, shall promote affordable rental housing through schemes and programs targeted at vulnerable populations, those in poverty, and individuals with lower income.
Comparison with the International Experience
The new guidelines establish provisions that have already been adopted in other countries, such as in the United States of America, in New York State, where increase of rents in lease agreements are subject to 2.75% cap. This initiative significantly impacted property owners whose income relies on rental payments. However, unlike the reform for Mexico City, New York does provide for a tiered increase, based on the duration of the lease.
In Italy, for example, a ban was imposed on new listings for Airbnb and other short-term vacation rentals in the historic center of Italy as a measure to curb the rapid increase in rents.
On the other hand, in Barcelona, Spain, there is a situation similar to that of New York, but with a 3% cap on annual rent updates on existing lease agreements, unless a different percentage is agreed upon by both parties.
Finally, in Vienna, Austria, there is a 5% cap on annual updates of those lease agreements known as “reference rents” which pertain to apartments in multifamily buildings constructed before 1953. Which also applies to apartments in state-subsidized buildings.
All of these cases seem less restrictive than the intended rent increase limitation for Mexico City. In each of these locations, the reforms have considered that there are landlords whose income relies exclusively on rental income, particularly among the middle class. Therefore, determining rent increases based on the CPI rather than market needs could have a negative impact on the rental market.
In Mexico City, there is a reference back to 1944 when the rental increases were capped as a way to mitigate the potential upcoming economic crisis impact as a result of the World War II. The result of this measure after a decade caused property owners to stop investing in the maintenance of their properties, and as a consequence, many buildings worsened or were converted into warehouses. It would be interesting to explore whether the lack of maintenance of these buildings contributed to their collapse during the 1985 earthquake.
In 1990, the cap to rental increases was eliminated in order to normalize the real estate market in Mexico City.
