OPINION: Spain's new housing law may worsen looming rental crisis

For the first time in its young democracy, Spain’s central government passed a law to regulate rentals, but could the Spanish Housing Law make things worse? 

The law, which took effect in May is the government’s attempt to harness rapidly rising rents. But strong provisions for long-term leases leave a magic loophole — mid-term rentals. Add to that, the newly launched digital nomad visa and Spain’s major cities are on pace for a major housing crisis.

In 2022, the annual increase was 36 percent in Barcelona, 32 percent in Valencia, 25 percent in Malaga, and 16 percent in Madrid. In 2023, prices continue to climb, and local wages don’t keep pace.

In Barcelona, the average annual net salary is roughly €32,324 according to figures from 2021 and the minimum wage is around €1,100. Meanwhile, foreign investors are buying homes in record numbers — 21.2 percent of local sales in 2023. Many of these buyers hope to capitalise on the influx of high earners with remote jobs; the Spanish Housing Law does little to stop them and may even incentivise them.

One expat made a recent purchase in Poblenou, a beach-adjacent neighborhood once favored by artists, but now filled with young expats looking for converted lofts and specialty coffee.

The buyer is quite happy; she’s renting the flat for 2,500 euros a month, profiting on tourists flocking to Barcelona for the summer. A real estate agent asks if she has a license for short-term rentals. She doesn’t; Barcelona mayor Ada Colau banned new applications back in 2016. No problem, the owner will rent her flat on a mid-term lease.

You’ll see these flats listed on housing sites, like Idealista, as “32 days to 11 months.” Anything longer qualifies as a long-term lease, which gives the renter a right to stay for five years (seven years if the landlord is a company) with tightly regulated rent increases and protections from evictions. Mid-term leases are also advertised as short-term leases, medium-length leases, holiday homes, and seasonal rentals.

READ ALSO: Five key points about Spain's new housing law

Under Spain’s new housing law, regulations for long-term rentals are even stricter, making mid-term rentals more appealing to landlords eager to benefit from high earners moving to Barcelona on digital nomad visas.

Whereas rent increases on long-term rentals are capped at 2 percent for 2023 and at 3 percent in 2024, landlords can set new prices each time they rent a flat to a new tenant. Midterm-term leases aren’t subject to provisions in the Housing Law allowing for the classification of “stressed residential markets,” which limit the price of new rentals in areas where rents exceed the average household income by 30 percent. Nor are midterms leases subject to new provisions offering lease extensions to tenants in a “vulnerable” situation. The eviction process has also become more difficult and arduous, forcing landlords to attempt arbitration with tenants and ending evictions at unscheduled dates and times, another thing less worrisome with mid-term leases for expats.

With a growing market of professionals, the Poblenou landlord will have no problem finding highly paid digital nomads to rent her flat. “With the new law, no one is giving long-term leases; they’re not interesting,” the expat says, sipping her wine and adjusting her dark sunglasses. You can’t raise the rent and you can’t kick out the tenant. With a mid-term rental you can.”

That’s not to say mid-term leases are completely unregulated; they’re meant to be the exception, rather than the rule, and landlords must have certain rationale for offering them, such as a tenant being in Barcelona for a short work contract, study abroad etc. These terms and reasons should be stipulated in the contract but often landlords and the agencies that specialise in these seasonal rentals take advantage, utilising mid-term leases to side-step housing laws meant to guarantee fair and accessible housing to residents.

The landlord continues to charge higher rents and the agency profits from fees paid with each new contract. And while Spain’s new Housing Law stipulates that landlords (not tenants) must pay the agency fees in long-term rentals, tenants must pay the fees for short-term rentals. While Spain’s new Housing Law aims to increase affordable housing, it motivates landlords to avoid long-term leases altogether, catering not to residents, but to expats able to pay higher prices.

Already you’ll notice a shortage of long-term leases offered on rental platforms. Search “mid-term rental” and you’ll also notice several agencies advertising investment opportunities, selling owners on the opportunity to make high returns with “higher quality tenants.”

It’s not that Spanish Housing Law forgot about mid-term rentals, leaving an accidental loophole, rather, it delays resolving the problem. The law’s fifth additional provision establishes the constitution of a working group to improve the regulation of seasonal contracts. As legislators debate future resolutions, renters continue to suffer while landlords and rental agencies profit.