Barcelona’s experiment with rent controls, introduced in the first quarter of 2024, was designed to address the city’s rising rental costs and provide affordable housing to its residents. While the policy has succeeded in moderating rental price increases, the broader evidence suggests significant unintended consequences, including reduced rental market activity and a growing housing shortage.

Modest reductions in rental prices

In the second and third quarters of 2024, the average rent in Barcelona stood at €1,133 (Fig. 1), reflecting a year-on-year decline of 1.3%. Over the past decade, average rents in the city have risen by 53%. When adjusted for inflation, however, this growth is more modest, with real terms showing an increase of just 23% over the same period. A similar pattern emerges when analysing rental costs per square metre (€/sqm). In Q2 and Q3 of 2024, the average cost was €15.9 per sqm, compared to €16.1 during the same period in 2023, representing a decline of 1.18%. Over a decade, the nominal increase in €/sqm is 41%, but after inflation adjustment, the real increase mirrors that of average rents at 23%.

These figures indicate that while rents have risen over the past decade, the increases in real terms have been more contained, especially when considering inflationary pressures. The slight decline in rental prices following the introduction of controls suggests that the policy has met its goal of curbing price hikes, at least temporarily.

The cost of reduced rental availability

The apparent success in limiting rent increases has come at a significant cost. The number of rental contracts signed in Barcelona during Q2 and Q3 of 2024 fell to 15,423, a sharp decline of 20% compared to the same period in 2023 (Fig. 3). This figure is also 30% below the ten-year average, equating to approximately 6,647 fewer homes rented than the decade-long norm.

When comparing the number of new rental contracts signed this year to the pre-pandemic and pre-rent control years of 2018 and 2019, we see a significant decline. The number of contracts that were either not signed or are “missing”—essentially the contracts that would likely have been signed if rent controls were not in place—amounts to nearly 75% of the total number of contracts signed this year. While rent controls have limited rent increases by just 1% for the fortunate few who secured leases, almost as many were unable to find housing due to the reduced availability caused by these controls.

This decline in rental transactions highlights a growing shortage of available rental properties. Landlords, disincentivised by the capped returns under rent controls, may be withdrawing properties from the market or converting them for other uses. The resulting scarcity has made it increasingly difficult for residents to secure rental housing, undermining the policy’s intended social benefit.

Interpreting the rental market indices

When examining the key metrics through indexed data over the past decade (Fig. 4), further trends emerge. The average rental price index has risen from 100 in 2015 to 153 in 2024 (blue line), outpacing the €/sqm index, which increased to 141 (not shown). This discrepancy suggests that the average size of rental flats has grown over time. However, the rental contracts index, now at 79 (dark line), reveals a troubling decline in market activity, with the number of rental agreements signed falling significantly.

Unintended consequences of rent controls

While rent controls have succeeded in moderating price growth, they have exacerbated other challenges in Barcelona’s rental market. The shortage of available rental properties has left many prospective tenants unable to find housing, even at the slightly lower rental rates. By limiting landlords’ potential income, the policy may discourage investment in rental properties, further constraining supply.

Barcelona’s experience is consistent with the broader criticisms of rent control policies. Economists frequently argue that rent controls distort market dynamics, leading to shortages, reduced property maintenance, and a decline in overall housing quality. By capping returns, rent controls can disincentivise new construction and investment in rental housing, exacerbating long-term supply issues. Furthermore, such policies often benefit existing tenants at the expense of new entrants to the market, perpetuating inequality and limiting mobility.

While Barcelona’s rent controls may have achieved a temporary reprieve from rising rental prices, the evidence from the first two quarters suggests the policy will exacerbate Barcelona’s housing crisis by severely reducing the quantity and quality of homes for rent until the policy is abandoned at some point in the years to come. The only question is how much damage it will do in the meantime.

At the same time, housing access difficulties have become a major concern for voters in Barcelona, as highlighted by the latest municipal barometer from the City Council. The survey reveals that 28.8% of respondents view housing as the city’s top problem, a 12.2-point increase since July. This puts it nearly equal to public insecurity, cited by 28.9% as Barcelona’s leading concern.