When the new Housing Law came into effect in Spain on May 25 last year, experts already predicted dramatic consequences. Real estate experts heavily criticised the law introduced by the left-socialist government. They all predicted different implications of the law than those intended by the government. It now seems they were right.
The government wanted to make the housing market more accessible to first-time buyers with measures that would lower rents for them. Tenants were also central to the new arrangement. Price caps should keep rent increases under control. Furthermore, the new law would provide vulnerable people with better protection against unauthorized evictions. Experts already anticipated that landlords could circumvent these price limits in various ways. The critics had also predicted that since the law came into effect, many landlords have switched from long-term rentals to much more lucrative short-term rentals. Moreover, a price increase was generally predicted as a result of a tightening supply.
Tens of thousands of rental properties off the market
A year after the introduction of the controversial law, there appear to be 40,000 fewer rental properties available in Spain. Moreover, it is expected that another 60,000 rental properties will disappear from the market this year. Of these 60,000 homes, 40% will be in Catalonia. That is the only region where the price controls of this law are currently already being applied. In that sense, the area is a good practical example for other regions. In summary, it means that just over a year after the introduction of the law, Spain has approximately 100,000 fewer rental properties. While the demand for rental properties is only increasing.
Also read: New Housing Act in Spain reduces rental supply
The average rent in Spain increased to 1,069 euros
Despite the new law, rents continue to rise, as predicted. According to data from Alquiler Seguro, based on data from the Rental Observatory that it manages together with Rey Juan Carlos University, the average rental price in 2022 in Spain was €906. This increased to €1,002 in 2023 and a further increase is expected for 2024. The new average rental price is then estimated at €1,069, an increase of 6.68%. According to the experts, it is mainly the imbalance between supply and demand that causes the price increase. In 2023, there were an average of 45 applications per rental property within the first ten days after publication of the advertisement. That number has already risen to 50 by 2024.
Legal uncertainty among landlords
The decrease of 40,000 rental properties in the past year is partly the result of legal uncertainty among landlords due to the new legislation. The most important measure of the law is the possibility for municipalities to cap rental prices in so-called tense areas. This is now only applied in Catalonia. There, 140 municipalities have now been classified as tense areas. That number is expected to expand by a further 131 municipalities. Alquiler Seguro estimates that around 25,000 rental properties in Catalonia will disappear from the market this year.
Catalonia is the most ‘tense’ region
According to the Observatorio del Alquiler, Catalonia is one of the most expensive regions to rent a home. The province of Barcelona is especially expensive with an average rent of €1,536 per month. In 2023, the average rental price in the entire region was still €1,252. This is expected to rise to €1,361 in 2024 (+8.7%). Demand for rental properties remains high, with an average of 80 applications per property within ten days, and in Barcelona even 101 applications.
Unrealistic goal
The Housing Act obliges governments to promote the availability of affordable housing in tense areas and to control rental prices. The Generalitat de Catalunya has presented a plan for the 140 affected municipalities. This plan is aimed at creating social housing that should represent 15% of the total housing stock within twenty years. However, Alquiler Seguro considers this goal unrealistic given the current pace of housing construction.
Expansion of rent control
The Spanish government is looking for ways to expand rent control to other regions. This can be done by offering specific government support to communities that want to be classified as tense areas. This was one of the star measures in the new law to keep rents under control there. This has led to skepticism and rejection among the owners and the majority of the autonomous regions. They consider it ineffective and interventionist.
Stigmatisation of ‘big owners’
Likewise, the report reflects that the new definition and division of owners into small or large owners has contributed to the deterioration and stigmatising the image of the owners. While ultimately they are the ones that generate the supply. Many of them have withdrawn their properties from the traditional rental market to put them up for sale. Others have converted them into holiday rentals or simply taken them off the market.
Increase in holiday rentals
And another aspect questioned by the study is the increase in seasonal and tourist rentals. This increase is the result of homeowners who wanted to circumvent the housing law. At the same time, the new regulations have led to a precarious situation in the sector and increased distrust towards owners. In addition, concerns have increased about possible defaults and a tightening of requirements to access rental housing.
Another conclusion from the report is that fiscal measures do not support the stimulation of supply. Tax breaks in problem areas for landlords who reduce their prices by 5% actually create uncertainty, because this can even mean a loss of profitability.
Example Catalonia
In the specific case of Catalonia, the community with over a hundred designated stressed areas, the report points to a loss of 25,000 homes on the market and the aforementioned rising prices. Moreover, almost 15,000 homes per year would be needed to address the Generalitat’s estimated shortage of 295,000 homes. An objective that the rental observatory considers too ambitious.