Just two days after coming into existence, the Spanish Housing Law failed to do its main job, which was to woo voters in local and regional elections last Sunday meaning we now have a snap General Election in July. The political uncertainty creates a fresh headwind for the housing market.

It’s fair to assume that Spain’s coalition government of Socialists and Communists rushed the controversial housing bill through parliament just in time for Sunday’s elections because they thought it would win them votes. It didn’t work out that way.

The Socialists and their hard-left junior partners Podemos were pummelled in the polls last Sunday, prompting Spanish President Pedro Sánchez to call a snap General Election for July the 23rd, just before the long summer-holidays. Political commentators say it’s a characteristically risky bet.

Voters rejected the parties of the ruling coalition for lots of reasons, but it looks like the Housing Law didn’t help energise the base or attract new voters, as it was meant to do. Perhaps it was even a turn-off. The Socialist party was spanked in the polls, and Podemos was rubbed out.

Housing Law has Podemos fingerprints all over it

With good reason Podemos claim all the credit for a law the Socialists resisted for 13 months. The Podemos mindset explains why the Housing Law is mostly an attack on private property rights, landlords, and small investors, whilst giving carte blanche to squatters, all dressed up as “protecting the vulnerable” – the empty slogan of our times. 

Podemos leaders in the Spanish cabinet like Ione Belarra (Social Rights Minister) and Irene Montero (Equality Minister) are the kind of radical-left activists satirised in Monty Python’s film The Life of Brian (What have free-markets ever done for us?!). They talk obsessively about “speculators”, “vulture funds”, and “greedy landlords” (aka small investors who make up the vast majority of landlords in Spain), and pass counterproductive laws to indulge their spite.

The election results were bad news for the Spanish Socialist party, but a disaster for Podemos. The Left lost control of regional governments in Aragón, Cantabria, the Canaries, the Balearics, the Valencian Community, Extremadura and La Rioja, and many if not most city governments including former Socialist stronghold Sevilla, whilst the centre-right Popular Party ended up with an absolute majority in Madrid region and City Hall. Podemos was turfed out of almost all regional and local councils, and now look like a spent force.

Snap General Election

The day after the elections President Sánchez called a snap General Election for 23rd July arguing that voters need to clarify who they want running the country. He clearly thinks he has a better chance of winning in July than waiting until December, which was the plan before it became clear that Podemos have lost most of their support. It’s never been easy running a government with Podemos so perhaps he just can’t stomach any more of their shenanigans knowing they are a spent electoral force. For what it’s worth the government’s spokeswoman has said an early General Election is necessary to “fight the reactionary wave,” and that seems to be shaping up as the Socialists’ main message.

I suspect the Socialist might now regret having caved into Podemos over the Housing Law. It did them no favours on Sunday, and looks like it might even be a turn-off for voters going into the General Election. I doubt we’ll be hearing much about it from the Socialists in the election campaign.

Orphaned Housing Law

The Left lost power in key regions of interest to foreign buyers like the Balearics, the Valencian region, and Andalusia, and failed to take Madrid. Most of the regulations in the new Spanish Housing Law (for example rent controls) rely on local and regional governments to implement them, and opposition-controlled regions will opt-out.

Even in Castilla-La Mancha, where the Socialists managed to hang onto power, the regional government has declared it will opt-out because it considers the law counterproductive, and would prefer to encourage the building of affordable housing instead. 

So the new Housing Law will hardly be implemented at all before the General Election in July, after which it will probably be repealed if the opposition wins power. The Popular Party has already submitted a proposal to Congress to overturn the law for being “counterproductive, interventionist, and against individual liberty.”

Barcelona might be the only city to implement the new law. Although a former-mayor and conservative-nationalist candidate called Xavier Trias got the most votes on Sunday, a left-wing coalition, including the city’s current Mayoress Ada Colau, has enough seats to form the next city government. Colau has vowed that Barcelona will be the first city to implement the new Housing Law, and doing so might be condition of her support. But it is still far from clear who will run the city once the dust settles.

Fresh headwind for the market

There’s no escaping the fact that last Sunday’s results, and the snap General Election called for July, create political uncertainty that could drag on for months. Calling a General Election at the end of July, just before Spain’s long summer-holidays when nothing gets done, is also strange timing, but no doubt President Sánchez has his political reasons.

Although the Socialists did badly, and Podemos were almost wiped out, the same results in a General Election might not produce a clear winner. With last Sunday’s results in hand it’s hard to imagine the current coalition returning to power, but we could be in for a period of hung-parliaments and repeated elections, as has happened before.

Even if the right wing opposition gets enough seats for a majority in July, it could involve months of negotiations, so realistically I don’t see a new Spanish government in place until September or later, and clarity on housing policy coming after that.

Not knowing who will lead the next government and what will happen to the Housing Law is bound to cause some local and foreign investors to take a wait-and-see approach, which will subdue the housing market until the political situation is clarified later in the year.

The Housing Law is bad for the market, but so is political uncertainty, which creates a fresh headwind for the market whilst it lasts.

But as always, a lull in demand could be an opportunity for determined buyers with funds in place ready to take advantage of the opportunity. Also on the positive side, as lawyer Raymundo Larraín writes, the General Election could bring a business-friendly government to power that scraps the coalitions ‘Solidarity’ wealth-tax and makes Spain a much more attractive destination for foreign investors.