Mark Stücklin
A controversial new Housing Law came into force today having been rushed through parliament by the Spanish government in time for local elections this weekend. The government claims the law will improve housing access for the least well-off, whilst critics say the opposite will happen.
The law was rammed through parliament with support from parties on the left and radical left of Spanish politics, and opposed by all other parties. Unsurprisingly, the legislation is full of new regulations, restrictions and costs whilst taking a dim view of private property rights.
Here are the key features and benefits of Spain’s new Housing Law of 2023 as explained by La Moncloa, the Spanish President’s office (the Spanish version of Number 10 Downing St. or the White House):
The Law for the Right to Housing develops the right to decent housing enshrined in the Constitution. It aims to assist those groups facing the most difficulties in accessing this essential resource through measures such as rent price limits and the promotion of public housing.
The draft Law for the Right to Housing was approved by the Council of Ministers on February 1, 2022, by the Congress on April 27, 2023, and finally by the Senate on May 17. On May 25, it was published in the Official Gazette (BOE) as Law 12/2023, of May 24, for the Right to Housing. It is one of the reforms included in the Recovery, Transformation, and Resilience Plan.
The law includes measures to increase the supply of affordable housing, prevent tensions in the rental market, and support young people and vulnerable groups in accessing housing.
Additionally, it provides autonomous communities and municipalities with various tools to help contain or reduce rental prices and increase the stock of social rental housing.
Promotion of public housing
- Regulation of public housing estates to prevent sales to investment funds
- Indefinite qualification for protected housing to ensure a minimum period of at least 30 years
- Minimum requirement of 50% of rental housing within land designated for protected housing and increase in the percentage of land reserved for protected housing from 30% to 40% in urbanizable land and from 10% to 20% in non-consolidated urban land
- Creation and maintenance of an inventory of public housing stock
Rental price limits
- Fiscal or urban incentives for privately owned properties with reduced rent
- Declaration of areas with strained residential markets for a period of 3 years, extendable, to implement measures for rent reduction
- Maximum annual rent increase of 3% for existing contracts during 2024
- Starting from 2025, a new reference index for the annual update of lease agreements, replacing the CPI, to prevent disproportionate rent increases
In declared strained areas:
- Possibility of an extraordinary annual extension for the tenant after the contract’s expiration
- For new contracts with new tenants, rental limitation based on the previous contract’s rent
- Ability to apply price limit systems to housing that has not been rented in the last 5 years
Furthermore, the law establishes the possibility of approving reference price index systems by territorial areas, establishing a database of rental contracts to monitor and evaluate the adopted measures.
Improvements to strengthen the balance in landlord-tenant relationships
- Extraordinary one-year extension of lease agreements in cases of documented social or economic vulnerability
- Real estate management and contract formalization expenses borne by the landlord (e.g., commissions or agency fees)
Protection against evictions
- Improvements to ensure effective communication between the judicial system and social services, enabling prompt assistance to vulnerable individuals
- Housing solutions for affected individuals and extension of suspension periods for evictions until these solutions are provided
- When the plaintiff is a “large property holder” and the eviction affects vulnerable persons, the application of a conciliation or mediation procedure must be demonstrated
New definition of large property holder and vacant housing
- A “large property holder” can be considered someone who owns 5 or more residential properties in the same declared strained area, upon request by the autonomous community
- Definition of “vacant housing” to allow municipalities to apply a surcharge on the Property Tax (IBI) for houses that have been vacant for more than 2 years, provided that the owner has a minimum of 4 properties in this situation
- Modulation of the IBI surcharge (currently set at 50% of the net IBI amount), which can reach up to 150%
Source: La Moncloa
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This is my take on the new Housing Law
The Socialist party in government has been resisting this law for more than a year, but finally caved in to Podemos to keep their hard-left coalition-partners on board. This law has the fingerprints of the radical left all over it.
As far as the promotion of public housing goes, it’s unlikely that this law will encourage private investment in public housing, so the government will have to fund it all. Anyone who knows anything about Spanish public finances knows we are living on borrowed time. The government does not have the money or knowhow to build public housing on any scale that will move the needle, yet treats the private building industry like “pirates”. Sánchez has already promised close to 100,000 new ‘affordable / social housing’ homes from different sources like the Sareb (bad bank), but it’s all smoke and mirrors for today’s headlines.
As far as rent controls go, it depends what the goal is. If the goal is to reduce costs for sitting tenants and the better-off at the expense of landlords in the short-term, it’ll be a great success. If the goal is to improve housing access for future tenants and the less well-off in the long-term, it’ll be an abject failure. Rent controls reduce investment in rental housing and have never worked over time anywhere, ever.
The Spanish dictator Francisco Franco introduced rent controls back in the 1950s and ’60s, freezing rents indefinitely, and destroying the rental market in the process (which is why Spain still has one of the highest owner-occupier rates in Europe), so the democratically-elected Socialist government after Franco repealed them in the 1980s. Today’s Socialist government is bringing them back. Some people never learn. You can read a fascinating article (in Spanish) about rent-controls and social-housing under Franco here.
As far as protection against evictions go, this is an invitation for squatters from all over the world to come to Spain, and great news for alarm companies and extra-judicial squatter-eviction outfits who charge hefty-fees for very little because the State doesn’t protect property rights. If I was a criminal I would forget about the risky business of robbing banks and jewellery shops and start extorting second-home owners by squatting their properties. Almost zero risk, highly lucrative, and you get to keep all their personal possessions.
As far as redefining ‘large property holders’ as those who own five residential properties in the same area goes, this is clearly a spiteful attack on the ‘kulaks’. There’s no one that middle-class revolutionaries despise more than small investors from the lower orders.
As you might have gathered, I think the new Spanish Housing Law is going to be a disaster for Spain, and in particular for those it purports to help the most. But for the hard-left it’s win-win: Either it does its job and leads to electoral success, or it foments discontent in the system.
The good news for holiday-home owners is that most of this won’t affect them, other than the increased risk from squatter-extortion gangs, but that’s still a pretty low risk. Expats can expect taxes to go up, but that’s the same everywhere. Just look at the UK!
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