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Why rising rents across Spain are causing a new crisis

Capsule flats, price rises forcing tenants out: rents in Spain are soaring post-crisis, fuelling concerns of a new "bubble" in a country still traumatised by the collapse of its housing sector.

Why rising rents across Spain are causing a new crisis
All photos by by Gabriel Buoys/ AFP

Ruth Melida is in a jam. In April, she found out that the monthly rent of her flat where she lives with her unemployed husband and two children would rise from €605 to €999 ($710 to $1,170).

That leaves the family with under €200 to spare for other expenses. And the situation could get worse if her husband's unemployment benefits run out next month. 

“What do we do, those of us who don't have the means? Do we go live in the woods?” asks the 41-year-old, who lives in San Sebastián de los Reyes outside Madrid.

Like her, more and more Spaniards are having trouble paying their rising rents, with many forced to move, particularly in Madrid and Barcelona, as they struggle on low salaries or benefits.

“People who have lived all their lives in a neighbourhood have to leave for increasingly peripheral districts that are adapted to their budget,” warns Marta Montero, spokeswoman of an association for the right to housing in Madrid.

In the second quarter, rents rose 15.6 percent year-on-year in Spain, according to real-estate website Idealista.   

Since 2010, they have increased by 35 percent in Barcelona and 30 percent in Madrid.

“Every time I've left an apartment, its price has then risen 50 to 100 euros on Idealista,” says Angel Serrano, a consultant in Madrid.

'Capsule' rooms

Spain's Prime Minister Pedro Sanchez has promised a housing law whose exact details remain unclear but would likely include a rise in the minimum length of a rental contract from three to five years.

The leap in rents comes as Spain is still reeling from a devastating economic crisis that kicked off in 2008 when a housing bubble burst, leading to the eviction of thousands of indebted families who had bought their homes on credit.

As a result, “most people resorted to renting by necessity,” says Beatriz Toribio, head of research for real-estate web portal Fotocasa.   

One company caused a scandal this month in Barcelona, offering tiny, three-square-metre (32 square-feet) “capsule” rooms built one on top of the other in a house with shared living spaces for €200 a month.

READ MORE: Barcelona vetoes 'capsule housing' plan for low income workers


An image of the inside of a capsule. Photo: Haibu4.com

According to the EU Eurostat statistics agency, 43 percent of Spaniards who rent private housing spent more than 40 percent of their earnings on rent in 2016, compared to an average of 28 percent in the European Union.

Waiting for eviction 

“We're living in a rent bubble,” says Montero, who blames investment funds that have snapped up billions of euros in real-estate assets from banks, which themselves seized them from indebted families.

That's what happened to Melida's flat complex, which was social housing when she moved there in 2014 but was then snapped up by an investment fund that raised rents, forcing dozens of residents to leave.

They can't pay the new rent and are waiting to be evicted.   

But for Fernando Encinar, co-founder and head of research at Idealista, talking about a “bubble” is wrong as he says the current rise in rents is not due to speculation but the consequence of an economic recovery that began in 2014.

Spain forecasts economic growth of 2.7 percent this after three years of growth of 3.0 percent or over.

Encinar says lower rental prices “weren't real” several years ago and corresponded to “a crisis situation”.

READ MORE: Spain's property market just recovered to pre-crisis levels

From 2010, thousands of homeowners chose to rent out their places rather than sell them as there were no buyers in a country where the norm had been to own your flat or house, and they had to charge low prices. 

Still, faced with the current rise, Madrid's left wing city hall is battling Airbnb-type seasonal rentals they accuse of driving up prices.   

The city hall in Barcelona is trying to encourage owners of empty housing to rent their properties out.

Far-left party Podemos, meanwhile, has submitted a bill in parliament regulating rents and banning the eviction of tenants who cannot be re-housed.   

But others say that's not the solution.   

Toribio says more social housing should be built in a country where it only represents 2.5 percent of all housing, according to the Housing Europe foundation.

The government wants to build 20,000 units of social housing in four to six years.

By AFP's Clara Wright and Adrien Vicente 

READ MORE: The survivor's guide to renting in Madrid 

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PROPERTY

How to turn a bar, office or shop into a residential property in Spain

Commercial properties in Spain can be a lot cheaper than residential ones, but it’s not as straightforward as buying a former restaurant, office or shop and moving in. Here are the steps to follow and what you need to be aware of.

How to turn a bar, office or shop into a residential property in Spain

One of the tricks budget property hunters in Spain have been using in recent years is buying a local (commercial property), oficina (office) or nave (industrial unit) and transforming it into a vivienda (residential property) to live in or let out. 

It’s a trend that’s roughly doubled in big cities such as Madrid and Barcelona in the last five years. 

Buying a commercial property can work out to be 50 percent cheaper than a flat or house in Spain and there can be other advantages such as it being more open plan than Spain’s typical corridor-themed apartments as well having more money to invest in the renovation. 

Is it possible to turn a commercial property into a residential property in Spain?

Yes, in theory it is, but it’s not always possible. The rules relating to a change of property’s usage from commercial to residential or vice versa are determined by each municipality in Spain, so before you rush to buy un local, you have to do your homework first and be aware of some of the most common pitfalls.

It could be that the limit of residential properties per hectare has been surpassed already, or that without some major changes the property doesn’t meet the standards of size, rooms, space, height, layout, ventilation, air extraction or light of the town or city hall. 

It isn’t the most straightforward process and depending on the property and the individual municipal rules in place, it might just not be possible to live in the property or rent it out to others.

Living in a commercial property is illegal and may cause you problems such as not being able to activate water and electricity or register your padrón at the town hall.

Despite all the paperwork needed, flipping a bar or office and turning it into a home usually works out cheaper than buying a residential property in Spain. (Photo by ANDER GILLENEA / AFP)

Don’t be discouraged however, as in many cases it is possible to change the use of a property from commercial to residential and in regions such as Galicia authorities are currently facilitating the process to address the matter of empty abandoned stores and the lack of well-priced accommodation for young homeowners.

What are the steps to follow in Spain to change a property from commercial to residential?

Check the statutes of the community of owners: In order to make any changes within the community of neighbours, permission must be requested in advance. Beforehand, you can ask the comunidad president for a copy of the community statutes to see if the change of use from commercial to residential is mentioned.

READ ALSO: ‘La comunidad’ -What property owners in Spain need to know about homeowners’ associations

Request permission from the town hall: After getting the green light from la comunidad, you have to go to the ayuntamiento (town hall) of the town where the property is to find out if it’s possible to add another residential property to the finca (building). 

Even if this is confirmed, it doesn’t certify that the change of usage from commercial to residential is allowed, for which the town hall will ask you to provide an architect’s proyecto técnico or feasibility report based on municipal urban laws. You will only be allowed to swap from commercial to residential if the project meets the safety and habitability requirements of the Technical Building Code (Código Técnico de la Edificación).

Get the Building Licence: Known as licencia urbanística or permiso de construcción in Spanish, this is an official document required by the town hall for you to carry out a construction or renovation project. In other words, you’ll need this municipal authorisation to begin work on your future residential property, whether it’s major work or minor . 

Get the Certificate of Habitability: Once the renovation work is complete, you’ll need the cédula de habitabilidad to be able to move in or let the property out . The conditions for this are regulated by each regional government and again it’s an architect who must prepare a technical report in order for a town council technician to issue the certificate of habitability.

The certificate we need for the change of use is that of primera ocupación (first residential occupation), which has to include the usable surface area of ​​the home, rooms, address, location, maximum inhabitants etc.

How much does it cost to transform a commercial property into a residential one in Spain?

If for example it’s a 80m2 property with two rooms, the total would be about €50,000, according to property websites Idealista and Habitissimo, with the bulk covering renovation costs (€500/m2= €40,000) and the rest going to cover permits, architecture costs and taxes.

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