Spanish Government announces an attack on landlords that is bound to reduce housing access for the least well-off

spanish rental default eviction moratorium
Protesting against evictions in Spain. Photo credit: Antonio Marín Segovia / Foter / CC BY-NC-ND

In what looks like a ploy to distract attention from their factional infighting, the left wing coalition government in Madrid has announced plans to prevent landlords with ten or more properties from evicting tenants who don’t pay the rent. The end result will be less housing on offer for families in financial straits. 

Whilst the rest of the world tries to cope with the Coronavirus, the Spanish government has spent much of its energy in the past week fighting a turf war between the Socialists and their junior coalition partners on the hard left, Unidas Podemos. Sensing that infighting doesn’t look good, they’ve come up with a ploy to distract attention, and put on a show of unity: namely by attacking the property rights of landlords by preventing them from evicting tenants who don’t pay the rent.

Factional infighting between Socialists and Podemos

There is no love lost between the Socialists and Podemos, who have been forced into a coalition government by the electoral maths after two general elections failed to deliver a one-party majority. Socialist Prime Minister Pedro Sanchez said he wouldn’t be able to sleep in a coalition with Podemos, which might have been the case last week.

The latest spat was between old-school feminist Carmen Calvo, Socialist VP, and Irene Montero of Podemos, the new Minister for Equality (and partner of Podemos supremo VP Pablo Iglesias), who rushed out a Sexual Equality Bill that Socialists say is too vague, and potentially unconstitutional. Montero and Podemos are cultural Marxists who see themselves as fighting for more fluid gender identities such as those of men who say they are women, and for leadership of Spain’s feminist movement. The Socialists see Podemos as infantile, the Podemos the Socialists as arrogant.

Looking for a distraction

The Spanish daily El Pais reports that the government has been looking for a way to change the narrative with dramatic social initiatives to “relaunch an image of unity after a week of tension between the two coalition partners.” What better way to put on a show of unity, and rally the left wing base, than take a shot at landlords.

Sources from La Moncloa (the Prime Minister’s Office, the equivalent of No.10 in the UK) say “this Government has decided to take measures to put a stop to another social scourge that our country suffers from: evictions for not paying the rent.”

Evictions in Spain – the scale of the problem

There were 36,467 eviction proceedings against tenants behind on rental payments registered in Span last year, 2.2% down year on year, mainly in Catalonia (8,427), Andalusia (5,135), and Madrid (4,849), according to the Spanish General Council of Judicial Powers (CGPJ). That compares to 14,193 evictions for default on mortgage payments. The figures include all kinds of evictions, not just residential. The following chart shows how evictions for mortgage delinquency have been falling precipitously since 2015, whilst rental default evictions have remained steady at between 35,000 and 40,000 per year.

Moratorium on Spanish mortgage default evictions

Today the Council of Ministers is due to approve a Royal Decree extending a moratorium on mortgage default & foreclosure evictions in case of vulnerable borrowers, which came into force in 2013, and has been extended every two years since then. The difference today is it will be extended by four years to 2024, with a wider definition of vulnerable borrowers. The government is taking advantage of this news to announce its plan to extend the eviction moratorium to tenants who don’t pay the rent.

Moratorium on Spanish rental default evictions

The plan to prevent certain types of landlords from evicting certain types of tenants who don’t pay the rent will be implemented in the pending reform of the Urban Lettings Act (Ley de Arrendamientos Urbanos or LAU) to be introduced before the summer, and which will also include measures to introduce rent controls. Greater government intervention in the Spanish housing market is on the way.

La Moncloa has put a heavy emphasis on how “VP Carmen Calvo and VP Pablo Iglesias have worked hand-in-hand to get this new measure incorporated in the coalition agreement between PSOE and Unidas Podemos.”

Pablo Iglesias explained it like this on Twitter. “The most important thing is we have expanded the government coalition programme signed between PSOE and Unidas Podemos with a new agreement: concrete measures to stop evictions for non-payment of rents, which is the biggest cause [of evictions] in our country.”

He then goes on to explain the concrete measures in vague terms. “How? Increasing the reform already planned of the LAU to prohibit rental default evictions in tense markets and in cases related to vulture funds making money out of a basic right.” He then pats himself on the back saying “when one has government responsibilities, what matters are achievements, not promises,” followed by a big show of support and thanks to other members of the government, including the Minister for Economic Affairs Nadia Calviño, who has clearly been overruled to get this plan on the table.

Winners and losers from the planned moratorium on rental default evictions

The losers are landlords with 10 or more rental homes who are professionally involved in the rental business, as they will not be able to evict certain types of tenants who fall behind on rental payments in hot/tight/tense markets (areas of high demand). In the minds of Iglesias and the Podemos world, including the Mayoress of Barcelona Ada Colau, all professional investors and housing investment funds seeking a return are simply vulture funds, end of.

The winners are tenants classed as vulnerable or living in hot markets or with a landlord with 10 rental homes or more, as they cannot be evicted if they don’t meet their rental payments for whatever reason.

Vulnerable tenants include those who:

  • Have no alternative housing
  • Are unemployed
  • Have children
  • Are single parents with dependents
  • Households with members suffering from illness, discapacity, dependency, or domestic violence
  • Have large families

If this new PSOE-Podemos proposal becomes law in the reform of the LAU this summer, these types of tenants will have no incentive to pay the rent. It follows that the professional landlords targeted by this measure will go out of their way to avoid renting to households this measure is intended to protect.

And so it turns out that the least well off will be the biggest losers in the long run. And bear in mind that there is barely any council housing to speak of in Spain, so poor families don’t really have an alternative to the private rental market they will be shut out of.

Note that most Spanish households are owner-occupiers, and there is not a big float of rental properties on the market, which is why rental prices are rising in the face of growing demand. Most rental properties belong to private individuals who do not meet the definition of vulture funds / 10+ property portfolio owners, so will not be affected. But because the market is tight in some areas, the behaviour of lager players could have an impact on the market.

The Socialists and Podemos had to come up with something to distract attention from their infighting, cheer up their left wing supporters, and offer a display of unity, so they decided to go after private landlords of a certain type, who will respond by reducing their exposure to tenants of a certain type. As usual, the least well-off will pay the highest price in terms of reduced access to housing.

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