Punto Fijo, November 22nd, 2012 (Venezuelanalysis.com) – The Venezuelan government has announced new controls on the prices of housing rents, while prices of medicines are also currently under review.
Many basic goods in Venezuela are subject to price controls, including some food items and domestic goods, and the government has now added housing rents to the list of products subject to regulated pricing.
Government officials cite the need to combat inflation, which has been high in recent years, as well as the problem of speculation of prices by business owners and landlords as the principal reasons for price controls.
Tenants movements were instrumental in passing the new leasing law in 2011, and claim that the new price controls will end speculation in rent and housing prices.
“It guarantees a transformation of the rental system and will put an end to speculation because [prices] are based on construction costs, not what the market sets,” said Rigel Sergent, who is a member of the tenant movement.
Rent levels will be set as a percentage of the real value of the property, a value that is determined by the Housing Ministry and is expected to be below the market value.
New regulated prices for medicines will also be announced, after authorities noticed “abnormal” price changes by several pharmacy companies.
The purpose of the controls is to ensure that the medicines are accessible to all, yet representatives of the private sector have claimed that price controls create a lack of supply.
“If the manufacture of a product does not obtain a reasonable return on the investment, then you stop investing, you stop producing it,” said the president of the Venezuelan Confederation of Industry, Carlos Larrazabal.
Opponents also point to a reduction in the supply of rented housing, and say it is a result of the government policies to control prices which discourage private owners from renting.
According to one study by the Chamber of Metropolitan Real Estate, the amount of rentals on the market has been reduced by 72 percent over the last two years.
Representatives of small and medium-sized businesses, on the other hand, praised price controls as a way for them to achieve economies of scale given that lower prices increases the amount of total potential consumers.
“A better distribution of wealth along with price controls allows for economies of scale,” said president of the Federation of Small and Medium Industries (Fedeindustria), Miguel Pérez Abad.
Abad argued that the increased purchasing power of Venezuelan consumers was allowing for a “transformation of the productive capacity of small and medium industries.”
Government officials assure that production costs are carefully studied when establishing price controls so that supply will not be affected.