The coalition government, along with ERC and Bildu, has reached an agreement on the Housing Law, which presents significant changes in rental regulation in Spain compared to the previous regulations of the Council of Ministers. The updated law makes it easier for an Autonomous Community (CCAA) or municipality to identify areas of tense rental markets, replaces the CPI as the reference index in rental contracts, and redefines large landlords in tense areas, including both individuals and legal entities with five or more properties.
In 2023, the limit of 2% on the renewal of rental contracts remains, but it will increase to 3% in 2024. Additionally, a new rental index will be established starting in 2025, which will never exceed the CPI. This agreement on rental legislation in Spain has been announced by the spokespersons of EH Bildu, Oskar Matute, and ERC, Pilar Vallugera, who have highlighted the changes achieved in collaboration with the PSOE and Podemos government.
What has changed with the new housing law?
End of the CPI. New cap on the renewal of existing rental contracts
The renewal of rental contracts in Spain experiences changes in 2023, maintaining a cap of 2% on the increase of existing contracts until December 31. Starting in 2024, this cap will increase to 3%, and in 2025 a new Rental Index, prepared by Mitma, will be applied to achieve stability and remain below the CPI. Tenants will be able to request an extraordinary annual extension for a maximum of three years on existing contracts. The INE will establish a new reference index before December 31, 2024, to avoid disproportionate increases in rent.
New tense rental areas: how they are declared
The declaration of tense areas in the rental market in Spain undergoes substantial changes. Now, it is only necessary to meet one of two conditions to declare an area as tense for a period of three years, renewable annually: that the payment for housing represents an effort of more than 30% of the income of households in the area (plus expenses and utilities) or that prices have risen more than 3 percentage points above the CPI in the last five years.
Expansion of the definition of large landlord
The definition of large landlord in tense areas is expanded, reducing the number of properties needed to be considered a large landlord to 5 units owned by the same owner in that area, for both individuals and legal entities, as long as it is justified by the corresponding CCAA.
New rental contracts and the cap to be applied according to the owner
In tense areas, the caps on rental prices vary depending on whether the owner is a small or large landlord. For private landlords, the indexing will apply to the previous rent in force (2% in 2023, 3% in 2024, and the new index starting in 2025). For large landlords, a price index will apply that cannot exceed what the new rental index created by each CCAA indicates.
New rental housing in a tense area
If a property is rented for the first time in a tense area, if it has not been rented in the last five years, the limits applied by the reference price index will apply.
The owner will be the one to pay the real estate agency
The costs and fees incurred by the rental of a property will be the responsibility of the property owner.
Contracts cannot exclude the application of the Housing Law
Clauses that allowed avoiding the application of measures in the Housing Law in Spain through agreements between the parties are eliminated. Additionally, it is prohibited to increase rental prices through new expenses not previously agreed upon, such as community expenses or garbage fees.
Boost to protected housing for rent at limited prices
In Spain, the percentages of land reserved for protected housing increase from 30% to 40% in developable land (new developments) and from 10% to 20% in non-consolidated urban land (reform or renewal of developments).
Mandatory date and time for eviction
Evictions in Spain must now have a predetermined date and time, and new extensions are included in eviction procedures, delaying processes for more than two years. Furthermore, mandatory access to extrajudicial solutions for vulnerable individuals is stipulated.
The autonomous communities will be able to implement mediation mechanisms and housing alternatives, requiring large landlords to submit to these processes in case of evictions.
For the first time, funds from state housing plans will be used to offer housing alternatives to individuals at risk of eviction, such as subsidized social rents, rehousing of vulnerable individuals, or similar policies.
These changes will be incorporated into the bill sent to the Congress of Deputies, prior to its submission to the Senate, with the intention of the Ministries of Transport and Social Rights for it to be approved before the end of the legislature.
What remains the same with the new housing law?
The new Housing Law in Spain maintains several key measures related to rental and the promotion of affordable housing, such as:
- Tax incentives for small landlords
- Tense areas, rental to young people, and rehabilitation:
- Rent reduction in tense area (90%): When signing new contracts in tense areas with a reduction of at least 5% on the previous rent.
- Rental to young people (70%): In tense areas, when signing new contracts with young people aged 18 to 35 years.
- Rehabilitation or improvement (60%): If rehabilitation works have been carried out in the previous two years, demonstrating a reform of 10% of the property's purchase value. The maximum rent increase will be 10%.
- Mobilization of vacant housing: Municipalities are allowed to establish surcharges of up to 150% on the net IBI fee for homes that have been unoccupied for more than two years without justified cause and with at least four properties. If they have been empty for three years, the surcharge can reach 100%. For owners with two or more units in the same municipality, an additional 50% increase can be applied.
- Public housing stock:
- Indefinite qualification of protected housing:
Affordable rental will be promoted through the reduction of the net income from the rental of habitual housing. In new contracts, a deduction of 50% is established, increasing up to 90% in tense market areas.
Deductions are applied in specific cases:
The current 290,000 units of social housing, representing 1.6% of housing options, will be subject to permanent protection and cannot be sold. This compares to 10% in other surrounding countries.
A permanent public protection regime is established for protected housing promoted on land classified as reserved. In other cases, the minimum disqualification period is 30 years.
Reactions to the new housing law in Spain
How have politicians reacted to the changes in the new Rental Law in Spain
The government celebrates an agreement reached regarding the Housing Law, which has been stalled in the Congress of Deputies for over a year due to the lack of consensus among the parties in the investiture bloc.
Pedro Sánchez, the president of the government, has described the agreement as "historic" on Twitter, highlighting the progress in the right to decent housing and the strengthening of the welfare state.
Decent housing by law.
— Pedro Sánchez (@sanchezcastejon) April 14, 2023
We reached a historic agreement to approve the first Law of the Right to Housing of our democracy.
We respond to one of the main concerns of citizens and strengthen our welfare state.#ElGobiernoDeLaGente
Ione Belarra, leader of Podemos and Minister of Social Rights, has described the agreement as a victory for citizens and a defeat for banks, speculators, and the real estate employer. During a press conference at her Ministry, Belarra stated that it has been the "most difficult" negotiation of the mandate, considering the circumstances of the legislature.
Reactions from the real estate sector to the new Rental Law in Spain
Following the announcement by EH Bildu and ERC regarding the Housing Law agreement, Francisco Iñareta, spokesperson for idealista, criticizes the lack of supply in the rental market and argues that coercive measures against landlords have worsened the problem. He points out that the 2% limit on rental updates has had a devastating effect, complicating access to housing, especially for the most disadvantaged groups.
Iñareta adds that experiences in Berlin, Paris, and Barcelona show that similar policies have worsened the rental market, reducing supply and increasing pressure on prices. He compares the approved measures to the old rent regulations that led to the annihilation of the rental market and the deterioration of rented properties.
On the other hand, the Rental Negotiation Agency (ANA) describes the announcement from ERC and Bildu as an "electoral act" and criticizes the absence of serious and rigorous measures to increase the supply of rental housing. José Ramón Zurdo, general director of ANA, states that if the agreement becomes law, the supply of rental housing will decrease even further, as he believes that the measures are aimed at attacking landlords, both individuals and companies. Finally, he maintains that the regulation is unnecessary and unjustified, arguing that in countries where rental prices have been intervened, they have not decreased and have even increased in some cases.
