Catalonia introduces rent controls in a decree criticised by all sides

The Generalitat – the regional government of Catalonia – yesterday introduced a new decree imposing rent controls on the region, in a move that has been criticised by all sides.

Under the new decree, published in the regional Government’s official gazette, rental prices for properties of 150m2 or less are limited to within 10% to 20% of a recommended index price in areas where the rental market is deemed to be under pressure, or ‘tense’, as the decree describes them. That is to say, in areas where demand is strong and pushing up rental prices.

There are exceptions to the 10% limit, for example based on the age of a property, on the size, and the communal facilities, allowing a scale of higher price to be charged. Newly built or renovated homes can charge rents 20% above the reference prices for up to five years.

In Barcelona it will be left up to the City Council, the Ajuntament, currently run by the hard-left former housing activist Ada Colau, to decide which districts will get rent controls, if not the whole city.

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The Sagrada Familia district of Barcelona, which is bound to be classified as ‘tense’.

Housing experts warn that the regulations could actually drive up rental prices by reducing supplies, on the one hand, and because the index might overestimate the market price, on the other. Some experts say the decree is unconstitutional and won’t survive the legal challenges that are sure to come.

Housing activist groups like the Sindicat de Llogaters (Tenants’ Union) y la Plataforma de Afectados por la Hipoteca (PAH) – a hard-left group that the current mayoress of Barcelona, Ada Colau, used to represent – say it will encourage property speculators. Having demanded rent controls these groups describe the decree as a “farce” that will fail to control rental prices. “What’s worse, it will encourage prices to continue rising,” say the Sindicat, because “prices can be increased 10% or 15% above the oficial index, which is already based on bubble prices, and which will encourage it to inflate further.”

All that’s clear so far, reports the local press, is that the new decree has put a further brake on the rental market in Catalonia, as many people looking for a place to rent decide to wait and see if rental prices decline as a result of the new decree.

They could be waiting a while. The press reports it will take many more months of administrative work for the decree to be operational. First of all the Generalitat, or the Ajuntament in the case of Barcelona, has to define which areas are ‘tense’, and where rental controls will be applied.

It looks like this decree is half-baked, and might have been rushed out at election time for political gain. “There’s no doubt it creates doubt and a lot of uncertainty,” says Gufré Homedes, boss of local estate agents Amat, in comments to the Spanish press.

However this decree ends up working it is unlikely to affect the holiday-home rental market on the coast, as those areas will probably escape rent controls. It could, however, affect rental investments in Barcelona, and not in a way it’s authors expect. Industry experts warn this poorly conceived decree will end up pushing up rental returns in Barcelona. And you never know how badly drafted laws in Spain will get used or abused.

Rent controls in hot markets do not reduce demand or improve access to housing. Just like price controls of consumer goods in countries like Venezuela, you just end up with empty shelves.

The official web page of the Housing Agency of Catalonia for calculating the rental index price is here: http://agenciahabitatge.gencat.cat/indexdelloguer/

About Mark Stücklin

Mark Stücklin is a Barcelona-based Spanish property market analyst, and author of the 'Spanish Property Doctor' column in the Sunday Times (2005 - 2008).

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