A report from the international ratings agency Moody’s warns that Spanish government policies to protect non-payers and squatters from eviction will discourage housing investment.
Housing is always a delicate subject, but in Spain today it’s a minefield. For a start, it’s the focus of a political battle between the left-wing parties in Government, with the hard left pursuing populist policies to invalidate property rights, whilst the moderate left try to strike a balance between property rights, and the constitutional right to ‘dignified housing’ for all.
The Covid pandemic has made the situation worse, and resulted in new and frequently changing regulations that increasingly undermine property rights. The very latest change protects squatters from eviction if they are ‘vulnerable’, which of course they can all claim to be. Squatter mafia extortion-rackets are particularly good at exploiting this condition.
The international ratings agency Moody’s has noticed. In a recent memo to investors, reported in the Spanish press (I couldn’t find the original, so all quotes are my translations from the press reports), it observes, in the dry language of a ratings agency, that “although the measures are temporary, they follow a trend in recent years towards housing regulations that undermine the rights of creditors to repossess properties, which reflects the increasing relevance of the social risk in housing.”
The trend towards weaker property rights in Spain is clear, and was the subject of a study I mentioned here last year in my article on the Erosion of property rights, a growing problem in Spain. Moody’s notes that “giving social rights to illegal occupants weakens the legal security of owners. These social measures are difficult to undo once granted, and there is an increasing probability that the majority of these measures will be extended or replaced with others when they expire.”
This is a problem, in particular, for portfolios of bank repossessions, which were taken over from bankrupt developers. “These properties tend to have a high level of illegal occupancy, around 5% to 10% before the pandemic, and higher now with the crisis.”
Moody’s point out that the lack of social housing will only make the situation worse. The new law only allows eviction if a social housing alternative is available, which it rarely is. Only 2.5% of the housing stock in Spain is publicly owned. Moody’s note that regional governments spend just 0.8% of their budget on social housing, compared to 40% on health and 20% on education. The new regulations will increase the demand for social housing that doesn’t exist. As a result, private owners will be forced to bear the cost.
Squatter extortion-risk on the rise
The new regulations banning the eviction of squatters also encourage the organised extortion of property owners by gangs using squatters to hold properties to ransom, and this is a fast-growing problem. State protection of squatters in Spain makes it ruinously expensive for owners to take back control of their properties once squatters are installed. So, if you own a second home in Spain that is left empty for long periods of time, you should minimise the risk of squatters making themselves at home in your property by keeping a close eye on it. With that in mind I have helped develop a cheap and effective new solution harnessing the power of the latest property-watch technology to help you do this. I hope to put it on show here next week. Sign up below to be kept informed.