Are rent controls on the way or not? Recent comments by the Spanish Vice President and Economy Minister Nadia Calviño suggesting rent controls don’t work will annoy cabinet colleagues from the hard left of the governing coalition, who made rent control one of their main campaign issues.
Rent controls are so important to the hard-left Podemos party they insisted they were one of the key issues in the coalition agreement signed between them and the Socialists who now make up the government. The agreement states that they will “implement the normative measures necessary to cap the abusive rent increase in certain market areas under pressure” using a rental price index created by the government. A disagreement over the efficacy of rent controls is not a good sign for coalition harmony.
In a radio interview discussing rent controls a few days ago, Nadia Calviño, Socialist VP and Minister for Economic Affairs, said “there are different cities experimenting with that, establishing limits, but without much success.” With that in mind, she went on to explain that this government will focus instead on increasing the supply of homes for rent in line with a new housing plan prepared by the Ministry of Transport, Mobility, and the Urban Agenda to build 20,000 council houses for rent.
Seen as a moderate, and safe pair of hands for the economy, Calviño was appointed VP and put in charge of economic policy to send a reassuring message to Brussels and the financial markets. When she speaks it matters. This was not some unauthorised comment from a government small-fry.
No doubt she will have seen a recent report from the Bank of Spain evaluating the results of rent control programmes in other countries, which noted that though they can have the desired impact in the short term, in the long term they lead to “significant adverse effects” as the “supply side tends to react to price controls by reducing the number of homes available in the market” and “reducing investment in the maintenance of buildings.” Another negative consequence, noted in the report, is the emergence of “segmentation in the housing market as control measures are concentrated in certain groups and areas of a city.”
Podemos cabinet members like Pablo Iglesias or his partner Irene Montero have yet to comment publicly on Calviño’s position, but I suspect they will be arguing heatedly about it behind closed doors. With Calviño publicly arguing against rent controls, it’s not clear if they are coming or not.
The Mayoress of Barcelona Ada Colau, a leading figure in the Podemos world, claimed last week on radio that Calviño’s scepticism towards rent controls is due to lobby pressure from powerful real estate interest groups, rather than because she sees there are no real-world examples of rent controls improving access to housing. Colau and her Podemos colleagues blame rising housing costs exclusively on “speculators” and “vulture funds”.
Housing affordability is a growing issue in Spanish cities like Barcelona and Madrid, where powerful forces like globalisation and urbanisation are driving up demand for housing without a corresponding increase in supply, and the resulting housing shortage pushes up prices. Low productivity and salaries in Spain only exacerbate the issue, but it’s not exclusively a Spanish problem – Berlin has just introduced a controversial rent cap in response to skyrocketing housing costs in the German capital, though legal challenges could keep the law from going into effect.
Outside of Spanish cities housing costs are probably still falling in many areas, especially in those where the population is declining as young people move to the cities. If the government does legislate rent controls, it will leave it up to local authorities to enforce them. Madrid has already said it will not impose rent controls even if given the power to do so. Barcelona most certainly will.