Home » How Spanish dictator Franco crushed the rental market with price controls

How Spanish dictator Franco crushed the rental market with price controls

Franco. Picture credit: Author unknown

Spanish dictator General Francisco Franco crushed the rental market with price-controls, but also presided over the building of lots of affordable housing, which helps explain why the owner-occupier rate in Spain is still above the OECD average.

Franco is portrayed as a ‘right-wing’ dictator but he doesn’t easily fit the mould. In some respects he was left-wing, especially when it came to housing policy. He didn’t just control rents, he froze them, to benefit the ‘people’ at the expense of landlords. 

Two old ladies

Two old ladies in my building in Barcelona still have Franco-era rental contracts, living in big flats that could house four families comfortably. They use little of the living space in their flats, and pay rents that are less than 5% of current market rates. Ownership costs exceed the rental income, so the owners have been paying for them for decades. Cases like these help explain why there is such a shortage of rental housing in Spanish cities. Why would these little old ladies move to more comfortable (and expensive) accommodation, and free up housing for young families, when someone else is paying their rent?

Franco’s policy of freezing rents whilst building lots of cheap homes for purchase also explains why Spain still has above-average owner-occupier rates in the OECD. The problem today is that young people can’t afford to buy.

Isn’t it ironic?

Franco’s rent controls destroyed the market over time, as nobody invested in maintaining or building private rental housing that offered no return. The quantity and quality of rental housing dwindled as the years went by.

But the avenue of buying a cheap home also came to an end after Franco’s death. Democratic Spanish governments after Franco did not invest in building affordable housing, let alone social housing. House prices rose on the back of prosperity, scarcity, labour costs, building costs, taxes and red-tape.

Families still needed somewhere to live, so the rental market had to be fixed. Felipe Gonzales’s Socialist government in the 1980 repealed Franco’s rent controls for new contracts.

Spain needs look no further than its own history to discover that rent controls are counterproductive over time. The Socialists learnt that from Franco, so it’s ironic that a Socialist-led government in 2023 has brought rent controls back.

I found a fascinating article about Franco’s housing policy by Spanish historian and university professor Luis E. Togores that is well worth a read if you are interested in understanding this subject. It is published in Spanish at El Debate, but I can’t find an English translation to link to anywhere so I’ve taken the liberty of translating it into English and publishing it below. It seems that Franco was talking about ‘social justice’ long before today’s social justice warriors were born.

When Franco froze rents and promoted social housing (successfully)

By Luis E. Togores, published by El Debate.

The dictator built over four million social housing units in 14 years (1961-1975), which the majority of Spaniards managed to pay off in 8 to 10 years.

When Franco died, no one dared to touch “his” rental law, which had frozen the price of housing rentals throughout Spain. A Francoist law born to protect tenants – the supposedly weaker party – against landlords – the seemingly wealthier ones – within the authoritarian social policies of the regime, openly opposing market freedom and the complete availability of private property. At first glance, this measure seemed designed to undermine economic liberalism and with it, democracy.

Francoism, a regime that uniquely mixed ultra-nationalist ideas, authoritarian forms of government, socialism in economic matters, private property, and anti-capitalism (all within a Spain steeped in stale clericalism and governed by military and Falangist forces), had no qualms about freezing rental incomes without flinching. Thus, Franco and his ministers enacted the Limited Rent Housing Law of 1954 and the Urban Leases Law of 1964, whose preamble stated:

“The liberalisation movement of urban property must be tempered not only by the rhythm determined by the country’s economic circumstances but also by the unavoidable demands of social justice, which constitute the essence and reason for being of our political regime. This reform of the Urban Leases Law responds to these fundamental principles, a reform that, naturally, cannot consist of a simple and immediate return to the legal system of common law until it is modified to adapt to the imperatives of our time since we have not yet achieved the necessary economic maturity nor have we managed to satisfy the housing needs of significant sectors of Spanish society, despite the considerable effort made and the evident increase achieved during this last decade.”

These laws led to the near-complete reduction of the rental market, forcing Spaniards to save up to buy their own little homes. Those were different times! Although interest rates were very high, the price of houses was quite reasonable, and most people were able to purchase a home according to their economic situation. Thus, 77.8% of Spaniards were homeowners. These figures have been decreasing in recent years due to the significant rise in housing prices, which are not aligned with the current wages of Spaniards. Spain has gone from being one of the top ten countries for home-ownership to number thirteen.

In 1950, the government estimated that there was a deficit of one million housing units to fulfil its “one family, one home” project. To tackle this enormous problem, in the mid-1950s, General Franco created the Ministry of Housing. The regime implemented a policy of social housing as early as April 19, 1939, when the new National Housing Institute launched a “protected housing plan,” “subsidised housing,” and “limited-rent housing.”

Alongside the highly protective and interventionist Urban Leases Laws of 1951 and 1964, a Subsidised Social Urgency Plan for housing was launched. The Second National Housing Plan (1961-1975) aimed to construct four million houses, the minimum quantity needed to eliminate the existing housing deficit. In total, 1.5 million housing units were built to meet the demand resulting from the significant population growth; 250,000 to accommodate internal migration, and 900,000 for replacing old housing. Franco oversaw the construction of 4,080,619 social housing units over 14 years (1961-1975). Between 1960 and 1980, the number of family homes doubled, going from 7.7 million in 1960 to 10.6 million in 1970 and 14.7 million in the early 1980s. During this time, the majority of Spaniards were able to acquire a home that they paid off in 8 to 10 years, despite bank interest rates often exceeding 10% annually.

Franco imposed the freezing of “old rents,” which kept rental prices unchanged and forced indefinite contract extensions. This measure was a consequence of the socialist social policies of Francoism aimed at ensuring housing for many Spaniards. This situation came to an end with the arrival of Felipe González from the Spanish Socialist Workers’ Party (PSOE) to La Moncloa. The Boyer Decree 2/1985, issued on April 30, regarding economic policy measures, marked the liberalisation of the rental market, putting an end to the Francoist dictatorship’s control over housing rents.

Leave a Reply