MADRID – On Tuesday, the Council of Ministers approved the new housing act (Ley de la Vivienda) in Spain. The star measures are opening up the possibility of lowering rents by law for owners of multiple property rentals and promoting social housing.
The Housing Act text still has to be discussed in parliament. But what exactly does it contain? What are stress zones, for example? What percentage of the new promotions will be spent on social rental? And what tax breaks or increases can homeowners expect in Spain? Learn more here based on an in-depth article on the fine print of the housing act on NIUS.es.
A stressed market area has the following characteristics:
- It is the autonomous communities and the municipalities that have to request whether their area can be classified as a stress zone. However, they are not obliged to do so. Furthermore, an award is for three years and can be renewed annually.
- The requesting public authority must draw up a plan with specific measures for this period. In the area, the cost of the mortgage or rent (plus utility costs) must exceed 30% of the median household income.
- The purchase or rental price must have increased in the past five years. That increase must be at least five percentage points more than the increase in the Consumer Price Index (CPI) in that zone. Example: In Madrid, for example, the CPI has increased by 7.7% since 2016. To apply for a stress zone, prices should have increased by at least 12.7%.
Moreover, the main measures of the Housing Act, which we explain below, are only applied in these stress areas.
- The regulation of rents here constitutes an ‘exceptional and temporary’ mechanism to intervene in the market.
- The tenant can obtain an extension of the terms and conditions after the last extension of his contract. Furthermore, the period is five years for the tenant and seven years if the landlord is a legal person. However, for new tenants, the rent from the previous contract is set as a ceiling.
- This extension is annual and can be requested for a maximum period of three years.
- The rent may only be increased – a maximum of 10% on the last contract of the past five years – under the following conditions:
- If, in the two years prior to the expiry of the contract or the signing of the new contract, the owner has renovated the apartment, carried out works that assume an energy saving of 30% or made accessibility improvements.
- When the lease is for a period of 10 years or longer.
Bonuses for landlord for rent reduction
Landlords have 18 months from the entry into force of the law to apply these measures. There is talk of ‘big’ and ‘small’ owners.
- The ‘grand owner’ is a natural or legal person who owns more than ten urban properties (or a built-up area of more than 1,500 square metres) for habitation.
- In their contracts, the agreed rent may not exceed the maximums of the reference price index, which will be drawn up by the competent administration.
- The ‘small holder’ is not obliged to reduce the rent, but can then enjoy a tax advantage. These private homes will be designated by law as ‘encouraged affordable housing’.
- These bonuses are applied to Personal Income Tax (IRPF).
- This is a 90% discount for landlords who reduce the rent by at least 5 percent compared to the previous contract.
- If the condition is not met, the discount is 70% if the owner rents out a home in a stress area for the first time to a person between 18 and 35 years old.
- A 60% reduction in real estate income is established for cases that do not comply with the previous points but have carried out rehabilitation work and 50% for the rest of the cases.
Reserve for social housing
One of the most controversial points of the law is that new promotions require a 30% reserve for social housing:
- At least 30% of new buildings on rural land that can be built on will be reserved.
- The percentage drops to 10% on already urbanised land on which a new building is being built. It must also be accompanied by an urban reform or renovation by the city council.
- Legislation may also exceptionally impose or exempt a lower reserve for certain municipalities or actions.
The news is that:
- 50% of this reserve should be allocated to social housing – ie 15% in the countryside and 5% in the city.
- The competent urban planning authorities will mediate on the relevant compensation mechanisms in urbanized areas without reform or renovation.
Increase of IBI for vacant houses
With the new law, the municipalities can increase the real estate tax (IBI) for vacant homes.
- The minimum increase is 50% if the home has been vacant for more than two years without a valid reason and belongs to an owner who has four or more residential properties. However, it will be 100% if the house is empty for three years.
- An additional 50% increase can be made if the owner has two or more vacant properties in the same municipal area. That is, a person with four floors, two of them in the same city, which has been vacant for more than three years, could expect an IBI increase of 150%.
The following are reported as valid causes for vacancy:
- Temporary transfer for work, education, dependency, health or social emergencies.
- Second homes (maximum 4 years of uninterrupted vacancy).
- Homes subject to renovation or extension work.
- Homes involved in legal proceedings or lawsuits pending a judicial or administrative resolution that prevents their use.
- Houses that are for sale (maximum one year in this situation) or for rent (six months).