The new housing law in Spain: An effective attempt to regulate prices or a regulation full of loopholes? In this article, we will explore the key aspects of the recently approved housing law in Spain and its impact on the real estate market.
From price regulation in tense areas to tax benefits for property owners, we will analyze the implemented measures and the criticisms that have arisen. Will this law succeed in addressing the current challenges in accessing housing, or will it fall short in its scope?
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The new housing law in Spain has just been approved, aiming to address challenges and needs in this area. However, this new legislation has generated mixed opinions due to the loopholes and limitations it presents in price regulation. Below, we will analyze the most relevant aspects of this law, valid until May 2023.
The law establishes that an area will be considered tense if it meets at least one of the following requirements: if the average cost of rent and basic utilities exceeds 30% of the average household income, or if the purchase or rental price of homes has increased at least three points more than the CPI in the previous five years.
Large property owners will be most affected by price regulation. When entering into new rental contracts in these areas, they will be required to reduce prices to a maximum limit set by the Ministry of Transportation through an index. Small property owners who rent out a property for the first time will also be subject to this cap, although small property owners who already have rented properties will have more flexible regulation. They can only increase the price when changing tenants and signing a new contract if they have carried out rehabilitation or improvement works in the property representing at least 10% of the purchase value of the apartment.
Furthermore, it is prohibited to increase rental fees beyond the established limits, preventing tenants from assuming community expenses or municipal fees.
Starting in 2025, a new index will be established to limit the annual increase in rental fees, replacing the CPI as a reference. However, the specific formula for this new index has not yet been defined.
Until 2025, the current limits will be maintained: a maximum of 2% for updates in 2023 and a maximum of 3% in 2024, regardless of the inflation level. Landlords cannot increase the price of existing contracts above these percentages.
The new law presents some exceptions and has been subject to criticism. Among them are:
The implementation of the new housing law in Spain has generated a series of criticisms due to its implementation and limited scope. While the law aims to regulate rental prices and protect tenants, there are loopholes that allow for price increases and situations of eviction without alternative housing.
One of the main criticisms is directed at price regulation in tense areas. Although requirements are established to identify these areas, the lack of clarity in the criteria and the absence of an effective mechanism to set maximum rent limits generate uncertainty and hinder its application.
Furthermore, the differentiation between large and small property owners in terms of
price regulation is seen as unfair and arbitrary. While large property owners are obligated to reduce prices in new contracts, small property owners enjoy more lenient regulation, which can lead to situations of abuse and inequality among tenants.
Another criticism focuses on the lack of robust measures to address evictions. While mechanisms for conciliation and mediation have been introduced, there is no prohibition on evictions without alternative housing or an obligation to offer social rental, leaving many tenants in a vulnerable position when their rental contracts end.
Additionally, although the importance of protected housing has been mentioned and permanent qualification has been established, the law does not guarantee a significant increase in public housing or sufficient investment to address the growing demand for affordable housing.
In summary, the implementation of the new housing law in Spain faces criticism due to its lack of clarity, unequal treatment of property owners, and insufficient addressing of evictions and public housing. In order for this law to be effective and achieve the desired results, it is necessary to address these shortcomings and seek more equitable and comprehensive solutions for the benefit of all stakeholders involved in the real estate market.
They are delayed but not stopped. There is no prohibition on evictions without alternative housing, and there is no requirement to offer social rental, as is the case in Catalonia. Mechanisms such as conciliation and mediation are introduced, but the violence of evictions is not put to an end.
Invisible evictions, the expulsions that occur when the rental contract ends, even if all contractual obligations have been fulfilled, are also not prohibited. The threat of eviction at the end of the contract discourages many tenants from negotiating and makes them give up their rights.
Tax benefits for landlords. Until now, landlords had a 60% tax reduction. They only paid taxes on 40% of their rental income. With this law, this benefit is slightly reduced to 50%. However, they have a series of other bonuses: 90% if they make a new contract with a 5% reduction, 70% if they rent to individuals between 18 and 35 years old, and 60% if they have received subsidies for renovations (in addition to being able to increase the price by 10% in this case).
Permanent protected housing but lack of resources. The practice of creating protected housing that becomes part of the private market after a few years, inflating price bubbles, is ended. That is, permanent qualification of protected housing is approved for the future as long as the land remains qualified, which has been in effect in the Basque Country for years and in Catalonia since 2019. It also mentions the goal of reaching 20% of housing allocated for social purposes in 20 years. However, despite the successive almost parodic announcements by Pedro Sánchez, the law does not obligate the state to increase public investment, which is currently at ridiculous figures, nor does it explain where the two million housing units we would need to approach that number will come from.
The new housing law in Spain, of May 2023, is subject to controversy due to limitations and loopholes in its price regulation. While measures have been introduced to control prices in tense areas and limit annual rent increases, there are exceptions that allow for price hikes and situations of eviction without alternative housing.
Furthermore, changes have been implemented regarding tax benefits for landlords of rental properties. While permanent qualification of protected housing is established, the law does not guarantee a significant increase in public housing or sufficient investment to address the current demand.
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