Recent data highlights a growing divide in Spain’s rental property market, with Madrid holding its ground as an investment destination while Barcelona investors beat a hasty retreat.
The culprit? New housing legislation, including rent controls and tenant-friendly rules in areas deemed “strained”, that is spooking landlords and dampening appetite for rental investment across Spain, but most of all in Catalonia, where landlords are under the most concerted attack.
A tale of two cities
Barcelona has long been a favourite destination for property investors, but that reputation is starting to fray. According to data from the Cátedra Tecnocasa – UPF, investment purchases made up just 23.9% of property transactions in 2024, down from 30% the previous year. Excluding the pandemic blip, this is the lowest level in the historical series. Compare that to 2016, when investors accounted for 36.8% of the market, surpassing the national average, and even outpacing Madrid.
However, things have turned. Legislative changes like the new Housing Law, including rent caps in “strained” areas, are seen as the primary driver behind this decline. Investors are getting cold feet.
It’s not just small-scale landlords rethinking their plans. Institutional investors like Blackstone, operating through its Albirana SOCIMI (investment trust), started reducing their exposure even before the full rollout of the Housing Law. They opted not to renew contracts and offloaded assets, suggesting they see the regulatory burden as a profitability killer.
In contrast, Madrid appears to be weathering the regulatory storm. Nationally, investment purchases account for one in four sales, but in Madrid, it’s still one in three. Investors seem to view the capital as a safer bet, with fewer regulatory hurdles compared to its Catalan rival.
The Housing Law, alongside Catalonia’s earlier eviction restrictions, is causing anxiety among landlords. Sergi Llagostera, president of the Associació de Propietaris de Catalunya, sums it up: “All this legislation has reduced the security of receiving rent payments.”
Unintended consequences
Unsurprisingly, many landlords are changing course. Some are selling up, reducing the rental stock. Others are pivoting to temporary rentals, which offer more flexibility and better returns, but further tighten the supply of long-term rental housing.
Private investment is crucial for feeding Spain’s rental market, especially given the meagre public housing stock. In Catalonia, social housing accounts for a paltry 1.5% of the primary residence market. With private investors stepping back, supply is contracting just as demand surges.
Tecnocasa reports a 39% increase in demand in 2024, fuelled by improved employment, migration, and easier credit access. Yet, supply fell by 9.3%. Economist García Montalvo likens the market to a pressure cooker: “Demand is far stronger than supply.”
The pressure is visible in rental activity. Data from Incasòl shows that in the third quarter of 2024 – the first full period under rent caps – Barcelona saw more rental contract terminations than new agreements for the first time in the historical series. It’s a clear sign that the market is slowing.
The Housing Law was designed to protect tenants, but early indicators suggest it could be doing the opposite. By disincentivising private landlords, the legislation is shrinking the rental supply. This not only risks pushing rents up but also makes it harder for lower-income families to secure housing.
While Madrid remains attractive to investors, the divergence with Barcelona raises questions about the long-term effects of region-specific housing policies. This story will continue to unfold.
