Spain’s new government preparing a rental price index to put a lid on housing costs in hot markets like Barcelona

barcelona rental house prices
Barcelona, where the Mayoress Ada Colau is crying out for powers to control rental prices. Photo credit https://twitter.com/alfons_pc

The new ministry in charge of housing in the new Socialist-led Spanish government is preparing a rental price index to control prices in areas where the market is considered ‘tense’ or ‘stressed’. This will allow them to say they are doing something about the growing problem of housing affordability, whilst doing nix to improve access to housing.

Spain’s new Socialist-led coalition cabinet including the hard-left Podemos party is big and flabby, with lots of ministers reorganised in new ministries and positions with nebulous descriptions like ‘VP for Social Rights and Agenda 2030’, ‘Inclusion, Social Security and Migrations’, ‘Ecological Transition and the Demographic Challenge’, something about ‘Democratic Memory’, and, of course, ‘Transport, Mobility, and Urban Agenda’ – the home of the Housing Department in what used to be called ‘Fomento’ or the ‘Ministry of Development and Public Works’. Perhaps it suits this coalition Government to keep things right-on but vague, so everyone has an important sounding position, even if the scope isn’t exactly clear, and the flowery descriptions invite turf wars, as I guess they will.

Now we learn that the Housing Department within the Transport, Mobility, and Urban Agenda Ministry headed up by José Luis Ábalos, is putting the final touches to its rental price index that will be used to put a lid on rental prices in hot markets like Barcelona.

The ministry, which I will call ‘Urban Agenda’ for short, has used data from landlord tax declarations between 2015 and 2018, cross-referenced with data from the Cadastre property database to calculate a ‘fair’ rental price index for every property in the land. The idea is obviously away with the fairies, but that’s not a good reason not to try and implement it.

Urban Agenda says it will roll out its Spanish rental price index in the first quarter of this year, so local authorities can use it as a base for capping rental prices in ‘stressed’ housing markets, as agreed in the coalition deal signed off by the Socialists and Podemos.

Updated annually, the official rental price index will publish average rental prices in terms of €/m2 in neighbourhoods, districts, municipalities, provinces and autonomous communities using price data declared in registered rental contracts, where under-declaring is said to be rife. The Spanish press reports that the way Urban Agenda calculates the index, and previous figures provided by the ministry, suggest the index will come in way below market prices, at least in some areas.

It’s up to local governments to decide to use the index to control rental prices or not. Right-wing-run Madrid has already ruled out any move to intervene in the market, whilst left-wing Barcelona, run by Mayoress Ada Colau, is begging the government for more powers to mandate rental prices ASAP.

“We’ve spent five years demanding a law to allow us to regulate the abusive prices of rents, just like Berlin was allowed in Germany,” says Colau, quoted in the Spanish press. “With this new progressive government there is no excuse: we want it to become reality.”

She is putting pressure on the national Government in Madrid to change the law in the next few months to allow Barcelona’s municipal authority led by her to regulate rental prices in the city. “Everything is ready and we hope to see the legislative change in the next few months,” she said.

Do rent controls work?

In theory, no, as rent controls are expected to reduce incentives to offer homes for rent, pushing up prices as rental stocks decline, assuming demand is steady or rising. Do they work in practise? I’ve heard conflicting reports from cities that have tried them like Paris and Berlin. Without having done much research I get the impression they have been a failure where tried, but I could be wrong.

In Barcelona, with its space limitations and useless town planning department, I would expect rent controls to do nothing to increase the quantity and quality of homes available for rent. So some people might benefit from rental price caps, but many more might find nothing available to rent regardless of the theoretical fair price of the index. It would also boost the black market, which has always flourished in Spain under the right conditions.

Spain used to have a rent control law until the 1980s, and there are still many tenants in Barcelona who have indefinite rent control contracts, with three in my block of flats alone (30% of the building). With landlords out of pocket cash every month for decades as rents don’t cover costs  in the case of rent controlled flats, I have seen first hand what a disaster they are for building maintenance. So even if they do hold rental prices back, they are bad news for the city’s housing stock, and in the long run have to be abandoned, unless you want your city to look like Old Havana.

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