Politicians in Barcelona and Madrid call for rent controls as prices rise

rental prices madrid

Rental prices forecast to rise 10% in Madrid. Photo credit: Sebastian Dubiel / Foter / CC BY-SA

Rental prices are rising fast in many Spanish cities, in particular Barcelona and Madrid, where politicians are starting to call for rent controls.

There has been a slew of news reports in recent days concerning the sharp increase in rental prices in Barcelona and Madrid, amongst other Spanish cities. This has got local politicians in a lather about tourist demand for accommodation pricing out locals, and the gentrification of some areas as investors upgrade the housing stock and ask higher rents as a consequence.

A recent report from the international real estate company Cushman & Wakefield forecasts that average residential rental prices will rise 10% this year in Madrid, and 5% in Barcelona, whilst new figures from the Spanish property portal Idealista.com show that rental yields are also rising, implying that rents are rising faster than house prices.

Idealista’s figures are based on listings in its database of both rental and sale asking prices. That means they should be taken with a pinch of salt. But for what they are worth they reveal that average yields rose to 6.3% last year, up from 5.5% the year before.

The highest yields were to be found in the Catalan provincial capital of Lleida and Las Palmas de Gran Canaria (both 7.1%), followed by Huelva (6.7%), Málaga (6.3%), and Alicante (6.2%). In Madrid yields were 5.9%, and 5.5% in Barcelona.

Looking at these figures, however, I can’t help be a bit sceptical. I’ve had several people contact me by email, or leave comments on articles, or start threads in the forum like this one asking why rental yields are so low in Barcelona. So I have reason to suspect that average rental yields in a city like Barcelona are not as good as Idealista suggest.

But even if they aren’t as good, they still offer much better returns to small and big investors alike than fixed income and other common asset classes, with 10-year Spanish Government bonds paying something like 1.4%. Is it any wonder that investors are no piling into Spanish real estate?

WHAT’S PUSHING UP RENTS?

Barcelona

If rents are rising in Barcelona, Madrid, and other areas of high demand like Ibiza and Marbella, what’s pushing them up?

One big factor is the high transaction costs of buying a home in Spain, around 12% or more in places like Barcelona, which make it harder to buy and force more people to rent, especially younger adults with less equity capital. But you never hear of politicians calling for lower transaction costs that decapitalise families just because they need to buy a home.

You do, however, increasingly hear politicians calling for rent controls and other interference in the housing market whilst pointing the finger at tourist demand for accommodation, which is more lucrative than long-term rentals.

The city administrations of both Barcelona and Madrid recently called on the national Government in Madrid to change the rental law (Ley de Arrendamiento Urbano) to control rents and stop pricing out locals, reports the Spanish press. They want to regulate housing so “there is no segregation of inhabitants and areas exclusively for tourists that end up driving out citizens from their places of residence, and turning them into theme parks.”

They also want to prevent gentrification by “regulation rental prices at the national level” and have called on other cities to jump on the bandwagon.

Barcelona City councilor Gala Pin from the Ciutat Vella Old Town said “there will be no respite” in the battle against companies that buy buildings to evict tenants and sell them on.

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