Recently, the new Housing Law has been announced, which had been on stand by for some months and which will affect a large part of Spanish society. Two new terms have been introduced and a series of conditions have been agreed upon that have generated a great deal of uncertainty for all real estate investors.
The two new terms are, on the one hand, the so-called “stressed areas” come into play with this Law. These are understood to be any area whose average rent/mortgage plus supply costs exceed 30% of the average rent for the area or whose housing or rental prices have increased during the previous five years by three percentage points more than the CPI.
On the other hand, the term “large property owner” is updated, being considered as such from the fifth property owned, whereas previously it was from the tenth.
Two basic pillars of the new Housing Law
On the other hand, the new Housing Law has two basic pillars. It will limit the annual updating of the rent, ceasing to be indexed to the CPI and introducing a new index created by the INE, which, although it does not exist, it is already known that it will always be lower than the CPI.
This measure translates into a loss in real terms of the owner’s income, which will be cumulative year after year, since the difference between both indexes will be increasingly greater.
In addition, the price per rent in stressed areas will be regulated for new rentals. The new ceiling at which a landlord may charge rent to a new tenant will be a maximum of the previous tenant’s rent plus the increase of the new index.
On the one hand, small landlords will be able to avoid this measure by increasing the price per rent from now on, in order to be able to make the investment financially profitable, while large landlords will not be able to do so, as they will have limitations when stipulating the new price.
On the other hand, based on cases such as Berlin or Paris, the limitations on rental prices end up encouraging the undeclared rental market, where the tenant and the landlord end up agreeing directly on the conditions.
Landlords will have greater obligations, as they will have to bear certain expenses such as real estate agents’ commissions, garbage tax or community fees.
This measure makes the rental market less attractive to potential landlords and reduces the number of apartments for rent.
The last aspect, of which we do not have much information to date, is that small property owners with homes in stressed areas will have a series of tax advantages and incentives.
Initially, it seems that the new Housing Law is being launched to help people with fewer resources to access housing. However, the reality is quite different.
Landlords will stop discriminating tenants by price since the new Housing Law will control it and will start discriminating by the solvency of the new tenants, that is, by tenants with higher payment capacity, harming people with lower salaries or unstable contracts.
The problem with the rental market is that there is a much higher demand than supply in stressed areas, which causes prices to rise.
We understand that instead of focusing on increasing supply to bring prices down, providing incentives and facilities for new construction, these measures are limiting supply, making this market less attractive and resulting in the sale of properties and the outflow of capital to other markets that do not have limited profitability, such as fixed income and equities.
In our opinion, this measure will not affect everyone equally, since it will be up to each Autonomous Community to apply this Law, increasing, even more if possible, the uncertainty of the real estate market.
We will have to wait, but we believe that the political urgency in its approval has done a disservice to the long-awaited reform of the housing law.
Legal Analysis Department
MITJANS ADVOCATS SLP