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RENTING

EXPLAINED: Six things to know about Spain’s new housing law

After enduring hundreds of amendments, Spain's new housing law is likely to be approved early in 2023 and bring changes to social housing, taxes on empty homes, evictions and fiscal benefits for small landlords.

EXPLAINED: Six things to know about Spain's new housing law
After being batted around in the Spanish Congress and enduring hundreds of amendments, Spain's new housing law is likely to be approved early in 2023, the government say. Photo: Pixabay.

Originally brought to the table last February, Spain’s long anticipated housing will not be approved before the end of 2022, as the government had hoped.

The sweeping legislation, which hopes to regulate evictions, increase access to social housing, cap and in some cases even freeze rental prices, as well as try to do something about Spain’s dwindling public housing stock, among many other things, has proved divisive on many levels. Not only has the proposed legislation been criticised by the rental sector and the General Council of the Judiciary (CGPJ), but it has threatened to drive a wedge between government coalition partners and has had as many as 800 amendments proposed.

Spain’s Minister of Transport, Mobility and Urban Agenda, Raquel Sánchez, confirmed in a press conference that though the bill will not be rubber stamped before New Year, as was expected, she hoped the “green light” will come from the Cortes Generales in early 2023.

“It is true that we expected to have this law approved before the end of this year and it may not be so, but we are confident that it will be at the beginning of next year,” Sánchez told the Spanish press after a meeting of the Spanish Cabinet.

Sánchez also denied that the widespread criticism and hundreds of proposed amendments mean the bill is dead or blocked, and stressed that the government has been working “intensely” with other parliamentary groups to get it over the line.

The draft bill has been heavily criticised by Partido Popular (PP) members, who argue the bill in its current form is an attack on private property and enterprise, and also the rental sector, who question the legality of rental freezes and caps, and even the Spanish judiciary have voiced concerns about the legal implications of the bill on Spain’s autonomous regions.

Clearly, the draft housing bill has upset a lot of people. But what is Spain’s new housing law and why has it proved divisive so far?

The Local breaks down the six key proposals below:

Public housing stock

The law proposes that all new housing developments must set aside 30 percent of their new builds for public housing. Of that 30 percent, 15 percent must go to social renting.

At present Spain has a paltry amount of social housing, less than 300,000 units in its public stock, which means that only 1.6 percent of households are eligible for public housing, compared to around 10 percent in many European countries.

‘Stressed’ markets

Housing administrations will have the power to declare areas ‘stressed’ residential markets for three years, the duration of which may be extended annually if the circumstances persist. If an area is declared ‘stressed’, area specific action plans will be put in place to remedy the imbalances in the municipal rental market, which could include freezing or limiting rental prices.

For an area to qualify as ‘stressed’, certain conditions must be met such as the cost of housing in the area (whether mortgage payments or rent and utility bills) surpassing 30 percent of the average net income of households in that area. Similarly, rental prices in relation to the regional CPI increase will also be factored in, though it remains unclear exactly how localised these ‘stressed’ markets would be and if it would be on a municipal or district level.

Rental caps

For residents in areas deemed ‘stressed’, pre-existing tenants will be able to extend their current contract on an annual basis and for a maximum period of three years and effectively cap their rent, under the proposed law.

Vacant housing

In a bid to tackle Spain’s social housing dearth and use up some of the reported 3 million empty homes in Spain, local councils will, under the new legislation, have the power to implement a surcharge of up to 150 percent on the Property Tax (IBI) quota. This would be levied on homes that have been empty for more than two years without good reason, for property owners with a minimum of four homes.

If the property has been empty for three years, the surcharge could reach 100 percent, and there could also be an additional 50 percent rise in the case of properties whose owners have two or more flats in the same municipality.

Tax benefits for small landlords

Smaller landlords (deemed those with fewer than 10 properties) will be eligible for discounts and new tax incentives to lower the rental price of their properties

Though yet to be finalised, the draft proposes a 50 percent rebate to owners who rent out their property, and 70 percent if the property is rented for the first time to young people between 18 and 35 years old, or if it is a new contract with improvements or refurbishments.

The rebate could be 90 percent if the property is rented in a ‘stressed’ residential area.

Evictions

The bill also seeks to safeguard eviction procedures to protect vulnerable households and guarantee communication between judicial bodies and social services by introducing injunctions to allow a full assessment of the situation to be made and, if necessary, swiftly attend to renters in vulnerable situations whether it be economically or socially. 

READ ALSO: What changes about renting and buying property in Spain in 2023?

Member comments

  1. My Landlord says the 2% maximum increase doesn’t apply in my case. It’s only for landlords that own 10 or more properties – so he increased my rent last July, 2022 by 8.3%.
    Is this accurate?

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For members

TAXES

Spain’s deputy PM proposes freezing mortgage rates

Yolanda Díaz, Spain's Deputy Prime Minister and Labour Minister, has called for a freeze on variable mortgage rates amid news that Spain's biggest banks have enjoyed a bumper year of record profits.

Spain's deputy PM proposes freezing mortgage rates

Yolanda Díaz, Spain’s Labour Minister and the ideological force behind sweeping labour market reforms, has called for a freeze on variable rate mortgages following news that some of Spain’s biggest banks reported billions in record profits last year.

On Wednesday, BBVA reported a 2022 profit of €6.4 billion, the largest profit in its history. Driving this profit, the bank’s interest margin grew by a whopping 30.4 percent, commission income by 12.3 percent, and loans by 13.3 percent.

Banco Santander posted an annual net profit of €9.6 billion, up 18 percent from 2021 and higher than forecasted by analysts polled by financial data firm FactSet.

READ ALSO: Banco Santander posts record profit as rates rise

Given these record-breaking profits, especially against the backdrop of a prolonged cost of living and inflationary crisis in Spain, Díaz has said the government must act decisively to “freeze mortgages” and “moderate profits.”

“The crisis cannot be an excuse to earn more,” she said, adding that the rise in the Euribor rate is “very serious”, with the average increase (estimated to be €258 per month) “impossible to bear” for normal Spaniards.

Euribor is the interest rate most often used to work out mortgage payments and calculate both variable and fixed rates.

READ ALSO: What the Euribor rise means for property buyers and owners in Spain

It is anchored to the interest rate set by the European Central Bank (ECB), and, as we are now seeing, quite responsive to global economic events. By the end of January, the rate had risen to almost 3.4 percent, the highest level since December 2008.

“While the rise of the Euribor will increase the average mortgage payment by €250 per month, BBVA’s profits grow by 38 percent to reach €6.4 billion, the largest in its history. The crisis cannot be an excuse to earn more. Freeze mortgages, moderate profits,” Díaz wrote on Twitter on Wednesday January 31st.

Banks respond

Unsurprisingly, Spanish banks are not exactly keen on Díaz’s idea. BBVA President, Carlos Torres, said “I trust what will happen is that the benefits of a market economy continue to be defended”. 

Torres also tried to remind people of the “negative years” that BBVA has endured, with “many billions of negatives”. 

It remains to be seen how persuasive Spaniards or the Spanish government find this comparison, or whether Díaz’s Twitter idea will translate into policy.

Windfall tax

Díaz’s call for a mortgage rate freeze is in line with the Spanish government’s approach to the excess profits of banks and energy companies. In July, the Spanish government introduced a temporary windfall tax on excess profits in order to fund some of the extraordinary measures it was implementing to help the most vulnerable in Spanish society deal with the cost of living crisis.

The government in July introduced a draft bill to slap a temporary 4.8 percent charge on banks’ net interest income and net commissions in 2023 and 2024 to fund measures to ease cost-of-living pressures. Between the new taxes on banks and energy companies, they should generate around €7.0 billion for the state coffers in 2023 and 2024. 

However, in November the ECB published a non-binding legal opinion that suggested Madrid undertake a “thorough analysis of potential negative consequences for the banking sector” of the tax.

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