Spanish government extends rental inflation-relief for three more months as cap becomes yet another indefinite ‘temporary’ measure

spanish rent controls

The Spanish government has just renewed a ‘temporary’ rental cap on all long term rental contracts for another three months, suggesting the measure that makes landlords shoulder the inflation burden almost alone is far from temporary. 

The rental cap was introduced by the national government in Madrid back on the 1st of April as part of a package of economic measures to cushion the blow on the Spanish economy from the war in Ukraine. The 2% rental cap is meant to provide inflation-relief to tenants who can’t afford to pay higher rents. 

The Royal Decree 6/2022 of the 29th of March was introduced as “urgent measures in the context of a national plan in response to the social and economic consequences of the war in Ukraine,” as if the war was close to home, rather than about as far away as you can get in Europe.

In Section IV “Other measures to help workers and vulnerable groups”, Article 46 “Extraordinary limitations to the annual price revision of housing rental contracts”, the government introduced measures to prevent landlords from increasing rental prices in line with inflation, as landlords are allowed to do once a year.

Under the new rules, “major” landlords (with 10 properties or more) can increase rental prices by a maximum of 2%. Small-scale landlords with less than 10 properties are allowed to negotiate an increase up to the inflation rate, but cannot force tenants to pay an increase of more than 2%. In effect it means that all rental contracts in Spain coming up for annual renewal will only increase by 2%.

The inflation rate in May was 8.7% according to the INE statistics office, which means that long-term rental contracts renewing this month will see tenants get a 6.7% real decrease in rental prices, and landlords the same amount in lost real income.  Landlords see their costs rise  and income fall with high inflation caused as much by Spanish government policy as the war in Ukraine.

The government insists it is a “temporary” measure to protect “workers and vulnerable groups” but anyone familiar with this government will know there is nothing temporary about it. Just like a ban on evictions brought in during the pandemic, the measure is introduced as temporary and then extended indefinitely.  Unless inflation plunges before then, which nobody expects, we can be confident the government will renew this rental cap until at least the general elections in November 2023, and maybe longer if it clings onto power. Housing activists and the government’s coalition partners are calling for the 2% cap on annual rental increase to be made permanent. 

The Spanish property portal Idealista.com has estimated that the inflation-relief rental cap of 2% has already cost landlords 560 million euros in lost real income, and will cost them 1 billion euros by the end of the next extension. Small-scale landlords will be hardest hit by the lower real income, and higher real cost of living imposed on them by this government. 

This is just another measure from a government that punishes landlords, and discourages rental investment. You would be mad to invest in long-term rental housing in Spain today, and most investors aren’t mad.  Inevitably the quality and quantity of Spain’s rental housing stock will decline over time, making the challenge of access to decent affordable housing in Spain even tougher.

Thoughts on “Spanish government extends rental inflation-relief for three more months as cap becomes yet another indefinite ‘temporary’ measure

  • Ann McKiernan says:

    When you become a landlord you know you are providing accommodation for all kinds of tenants be they families, single workers, retired people, professionals etc. It is a fundamental human right to be housed. As a landlord you are making an investment as nd hoping for a return. Nothing wrong with that but investments go down as well as up & this particular inflation is caused by a number of events but in particular one specific event causing it to be much higher than normal.
    The Government have a duty to protect its citizens from the effects of such unusual forces & are doing so with this move. Landlords will recover from this temporary set back.

    • Mark Stücklin says:

      That’s very high-minded but I fear the policy will create a bigger problem. This is just the latest in a series of measures penalising landlords that will discourage rental housing investment, especially in Catalonia where it is de facto government policy to demonise and deny rental investors a risk adjusted real return causing a big but undocumented flight away from rental housing investment that is already showing up in a smaller, shabbier supply of homes for long-term rent. Is that a good outcome? I don’t think so.

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