Spain's new housing law (ley de vivienda), which the Spanish Parliament approved on April 20th, is a wide-ranging piece of legislation that will affect the rental market in particular.
Among many changes, it extends a rent cap on existing rental contracts, outlines 'stressed' rental areas where prices have risen significantly, and, in a move surely popular with all renters, shifts the responsibility to pay estate agent's fees away from tenants and onto landlords.
The law, which has seen hundreds of amendments and proven controversial with both opposition parties and landlords associations, has emerged after over two years of painstaking negotiation and contains several substantial changes compared to the original housing bill proposed by Spain's Council of Ministers in early 2022.
The legislation seems to be rather pro-tenant in its slant, and can read about how the reforms will benefit renters here.
So how does it affect landlords?
Rent cap
In 2022, faced with relentless inflation, the Spanish government approved a law to prevent annual rent increase in line with the CPI during 2022. In doing so, they set a 2 percent ceiling on increases, which the Spanish Cabinet then subsequently extended into 2023.
Rental prices in Spain are now on average 9.4 percent more expensive than last year, according to data from Idealista, Spain's leading property experts.
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Now this limit will be extended and changed: to 3 percent in 2024 and, from 2025, tied to a newly created index. There are no indications yet as to what the calculation mechanism will be for this index, nor what the cap could be, but it seems that this legislation does represent a break from using the CPI as an axis on which annual rent increases are plotted.
Put simply, landlords in Spain can no longer rise rent prices above the cap established by government.
Multi-property landlords
The law also expands the notion of who is considered a 'gran tenedor' (a major or multi-property landlord) by halving the number of properties needed to qualify.
Anyone who owns five or more properties for rent is now considered a major landlord, instead of the ten established in the original housing bill in 2022. The distinction between individuals and legal entities and businesses has also been removed eliminated, meaning that all owners with more than five rental properties are now considered a multi-property landlord, regardless of whether they are companies or individuals.
Agency fees
Anyone who has ever rented an apartment will be aware of agency fees and what an extra financial burden and worry they can be. In Spain, agency fees are usually equal to one month's rent, sometimes more, and the new law shifts the onus to pay fees onto owners not tenants.
In addition, the law also prohibits increases to fees beyond what is advertised or in the contract, such as forcing tenants to pay expenses for 'la comunidad' community or municipal fees.
Stressed zones
The law also aims to tackle spiralling rental costs in high-demand parts of the country known as 'stressed areas'.
Local housing administrations will have the power to declare areas 'stressed' residential markets and implement action plans to remedy the imbalances in the municipal rental market, which could include freezing or limiting rental prices.
There, major landlords with five or more dwellings will be obliged to charge rents within a "range" by means of an index that is yet to be finalised.
Landlords will also be incentivised to lower rents through so-called 'bonuses' for homeowners in stressed areas if they lower prices through tax relief of up to 90 percent if they reduce rents by at least 5 percent compared previous contract, and up to 70 percent if they put a home on the market and rent it to a young person between 18 and 35 years of age or to the local government so they can rent is as social housing.
READ ALSO: EXPLAINED: How Spain plans to address its huge lack of social housing
Unintended consequences?
The law could have some serious consequences for landlords, even forcing some out of the market.
The uncertainty generated by long-awaited housing reform, which is still awaiting its final approval, will lead some owners to force an increase in rents, according to experts who spoke to elEconomista.es.
One concern is that the rental cap will force some landlords to sell up, meaning more properties will move from the rental to the sales market and compounding the scarcity of rental properties, reducing overall stock, and driving up prices over time as a result. Another is that some landlords may prematurely end long-standing rental contracts in order to be able sign new contracts and bypass the rental cap.
"The homes that are now in the rental phase are going to increase their prices," Luis Corral, CEO of Foro Consultores, told El Economista. "The process of terminating the contract will be accelerated in order to rent at a higher price."
The new housing law, which is decidedly pro-tenant, could cause some landlords to leave the rental market altogether.
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