Spanish government announces plans to control the housing market

Spanish rental law

The left-wing coalition led by the Socialists has announced plans to impose nationwide rent controls, social-housing quotas on new developments, and increased taxes on empty homes that are bound to influence the Spanish housing market, for better or worse.

The governing coalition between the bigger PSOE (socialist) party and their junior partner the hard-left Podemos party have finally come to an agreement on a new housing law that Podemos were insisting on as a condition for allowing a budget to be passed in 2022.

Podemos have made housing their signature issue, with ambitions to set rental prices by law, force developers to dedicate at least 30% of all new projects to social housing, and discourage investors, in particular ‘big’ investors with 10 properties or more, who Podemos considered to be mainly speculators and vulture funds.

Proponents of the law say it will help dampen “soaring rents” that declined by 8% in Barcelona and 9% in Madrid over the last year. They point to a study by the Bank of Spain that found that the average cost of rent rose 50% between 2014 and 2019, but fail to mention that rents declined by a similar amount between 2008 and 2014.

A draft of the new law has been approved by the Spanish cabinet, but has yet to be published. Whilst providing little further information government sources have let it be known the new housing law will contain the following measures:

  • Investors, both individual and institutional, with 10 or more properties are classed as ‘big’ owners (grandes tenedores) and will be treated differently. The Spanish press reports that 15% or less of the Spanish housing stock is in the hands of big investors.
  • Rents charged by big owners in areas where the housing market has been classified as ‘tense’ will be limited by law to a rental price index published by the government. Big owners will also be denied certain tax incentives currently available to them.
  • Small investors (between 1 and 9 properties) will be offered tax incentives to lower the rent they charge. The current standard tax exemption of 60% will be reduced to 50%, but new rates of up to 90% will be introduced on a sliding scale in relation to lower rents.
  • Properties that stand empty ‘without good reason’ will be charged higher local property taxes, known as the IBI tax. The press reports the increase could be as much as 150%. This will only apply to owners of four or more properties, and should not apply to second-homes.
  • All new developments will have to dedicate at least 30% of their homes to social housing, half of which must be given over to council housing for rent.

Analysis by the Spanish daily El Pais suggests that most of the 109 municipalities that could be categorised as ‘tense housing markets’ are located on the coast or the islands, along with Madrid.

“We are going to contain and reduce rental prices, in part using fiscal incentives,” says government minister Félix Bolaños. “And we are also going to increase the social housing stock, with a quota of 30% of all new promotions kept for protected housing, of which half will be for rent.”

Reacting to the news, and in the absence of any clarity or details from the government, critics say the new law will discourage investment, reduce the supply of homes for sale and rent, increase housing costs, and reduce overall access to housing. 

Some of them point to results in Barcelona, where new home building collapsed after a social-housing quota of 30% was imposed on all new projects above 600m2.

All of them warn that measures that make Spain an unattractive place to invest in housing will encourage international capital to go elsewhere. It stands to reason that a reduction in housing investment will lead to reduced supply and lower quality, unless the Spanish government and small local investors make up the difference, if they have the resources to do so.

The biggest opposition party on the right, the PP, have already announced they will contest the law in parliament and in the courts, and will refuse to implement it in the regions they control. Calling it an “unprecedented attack on private property,” PP spokesman Cuca Gamarra said “the consequences of this housing market intervention will be seen in foreign investment. We have a government with communists who never miss an opportunity to intervene in markets.”

The final bill will not be approved before the second half of 2022. It is still too early to say what the final law will look like, and whether it will encourage or discourage housing investment. But based on the little information available, the latter looks more likely. Whatever the case, international investors will already be reaching their conclusions.

SPI Member Comments

Thoughts on “Spanish government announces plans to control the housing market

  • From my (long) experience with French “social housing”, one problem seems to be that these, no doubt well intentioned, “social” measures often result in distinctly anti-social behaviour.

  • Whilst a nice idealistic idea of mixing high value private with ‘Council’ housing, in practice it doesn’t work, unless it’s a really big development, where the different social levels can be in separate areas. It’s how villages and cities work, but few are going to pay high values to be mixed with others of different cultural and even moral traditions.
    Other countries and past decades have shown that it doesn’t work. In effect, it means that development will stop, creating scarcity if demand continues, raising the prices and rents for the existing. If these are then ‘controlled’, the market ceases to operate. Eventually, the restrictions must be lifted and the pent-up demand leads to a surge in prices and rents.

    • It works fine in The Netherlands, social housing with controlled rents sit happily next to “free market rents” and privately owned “different cultural and even moral traditions”? we are no longer in the 18th century.

      • Mark Stücklin says:

        That’s nice to know. But would you invest your money in a mixed-segment development knowing that the risk would be much higher? Most people wouldn’t, therefore much reduced if not zero housing investment, regardless of the century. Then what?

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