The left-wing radicals keeping the current Socialist-led Government in power are threatening to walk away unless national rent controls are included in the pending housing law.

A commitment to introduce a new housing law was a key part of the bargain between the Socialists (PSOE), and the radical left Podemos party, when they negotiated a coalition government. With the draft law close to completion, housing has now become one the main political battlegrounds between the coalition partners as they fight over the issue of rent controls.

Hard-left Podemos, led by Pablo Iglesias, and his partner Irene Montero, from their luxury villa on the outskirts of Madrid, have made rent controls one of their signature issues. Just like his fellow left-wing radical Ada Colau, the current Mayoress of Barcelona, Iglesias calculates that housing is a hot issue that lends itself well to his brand of left-wing populism, which he can exploit in his run for President of the Madrid Region. Housing is the biggest expense for most households, so anyone promising to lower that cost by decree is bound to win some support. He is demanding the new law includes rent control measures for the whole country, allowing politicians like him, and not the market, to decide how much a property is worth.

The PSOE, for their part, are in favour of more regulation, but against rent controls, which they argue will reduce housing investment. But more than an argument about housing policy, this is a political battle for the left-wing vote. Though coalition partners in government, the two parties are bitter rivals at election time.

High stakes political battle

The stakes are high. The Spanish daily El Pais reports that Podemos, and other radicals the government relies on, are threatening to pull the rug from under the parliamentary majority unless a rent control measure is included in the final draft housing law. The Socialists are trying to avoid this because of the damage it would do to the market, but have been told they will have to “find new partners” unless rent controls are included in the final law. For Podemos and co., rent controls are a “non-negotiable red line.”

Pablo Iglesias has made his party’s position clear on this question. “The PSOE and Unidas Podemos made a commitment before all of Spain to regulate rental prices,” says Iglesias, quoted in El Pais. “Not honouring a government commitment signed before the citizens is disrespectful to them. Unidas Podemos is not going to allow the people to be taken for a ride. What is signed must be carried out.” For good measure he went on to say that “Freedom in a social democracy does not mean freedom to charge extortionate rents,” and “there is no liberty if a family has no access to decent housing.” 

The Socialists, for their part, are in favour of more intervention in the rental market, but against rent controls they know will discourage housing investment, and end up limiting the supply of homes for rent. “That is what has happened in Berlin,” Socialists sources told the Spanish press, pointing to the failure of rent controls in the German capital, where price caps introduced a year ago and have led to a predictable decline in the supply of homes for rent, as reported by Bloomberg (Berlin’s Rent Controls Are Proving to Be a Disaster) and The Economist (After a year, Berlin’s experiment with rent control is a failure).

In this political battle, Podemos and all their affiliated groups, including housing activists, are trying to paint the Socialists as on the side of ‘speculators’ and ‘vulture funds’ charging ‘abusive rents’.

Yesterday they organised protest marches all over Spain to pressurise the Socialists to ‘keep their side of the bargain’, whilst trying to make them look like the bad guys.

Many of the protesters held up placards picturing José Luis Ábalos, the Socialists Minister whose department is preparing the new housing law, implying he is on the side of the capitalist property owners against the common people, and calling for rent controls, an end to evictions of all types including squatters, and brining ‘vulture funds’ to heel.

Spain has a problem with housing access and affordability in some areas, like the big cities and some islands, and a glut of housing in others, like the interior and some parts of the over-built coast. The problem is complex, but essentially boils down to supply and demand, like it always does. Prices are rising in areas where demand exceeds supply, and falling in areas where the reverse is true.

Competing visions

The moderate left, represented by the Socialists in Spain, seem to understand the problem, and are trying to find a policy mix to encourage landlords to contain prices with tax breaks, whilst encouraging housing investment to ensure a long term supply of decent affordable housing for all segments of the market.

The hard-left, represented by Podemos, see housing costs as simply a function of greedy landlords and financial institutions exploiting the people with ‘abusive rents’. Supply and demand do not come into it.

Their latest proposal is to limit all rents in areas of high demand to within 2.5% of a rental index, regardless of any other characteristics like features and condition, with no possibility of rental increases, not even to match general inflation. There will be no compensation for renovations to upgrade properties, but landlords who don’t renovate could be punished.

Why does it matter?

Rent controls won’t affect most of my readers, who live in their own homes, or own holiday homes in Spain, so why does this matter?

It matters because political stability is good for anyone with a property interest in Spain, and the battle over rent controls reveals the fragility at the heart of this government.

And it matters because, if Podemos get their way, long-term damage to the Spanish housing market is guaranteed. Ada Colau in Barcelona has already shown how much damage they can do to the housing market. Foreign investors shun the city, and new home building and investment has collapsed in response to her policies. Why invest in a place where you are likely to lose money, and be called a speculator and vulture fund for the privilege?