The 2023 Spanish Housing Bill – April 2023 – A housing bill has been recently passed with the objective of addressing the important housing crisis that has a huge social impact on a part of the Spanish population. It looks to relieve the pressure on house rents, making the market more accesible, especially to the younger generations and put a dampener on the sharp price rises Spain has experienced in the past years.
These is a summary of the main points
1- Expansion of stressed areas in the rental market will require either (a) that the sum of the cost of the mortgage or rent and basic expenses exceeds 30% of the average household income or (b) that the purchase or rental price of the home has increased at least 3 points above the CPI in the five years prior to the declaration of a stressed area.
2- The definition of stressed areas may include census districts, micro-zones, or entire Autonomous Communities.
Large holders will be defined as natural or legal persons who own five or more homes, while small holders own less than five homes.
3- Rent increases will be limited to 2% in 2023, 3% in 2024, and a new rental price update index will be established in 2025. Rental updates will be decoupled from the CPI by January 2024, and a new reference index will be created by January 2025.
4- Rental prices of new contracts in stressed areas will be regulated and capped. For small owners, the rental price may not exceed the previous rental price plus the increase corresponding to the current index. For large holders, the price containment index will be applied.
5- The owner will be obligated to pay the real estate agency commissions, which was previously paid by the tenant
6- The rental price cannot be increased by adding new expenses such as community or garbage fees.
7- Clauses that allow non-application of the law’s measures will be eliminated.
8- The new regulation has protection measures against evictions, including mandatory access to out-of-court settlement procedures for vulnerable people, new extensions in launch procedures, and state housing funds for offering housing alternatives for those evicted.
These are some of the measures that are being considered in the new 2023 Housing Law:
- Public rentals in new housing developments: This measure proposes that new housing developments must have a reserve of 30% of homes for the public park, with half of this percentage reserved for social rental. This means that a building with 100 homes must allocate 30 to this purpose, of which 15 will be for social rent.
- More taxes for empty houses: To encourage the rental of these homes to those that have been empty for more than two years for owners with more than four homes in the same municipality, the government will allow municipalities to increase the IBI rate for homes that are empty with a surcharge of up to 150%.
- Creation of incentivized affordable housing: Along with subsidized housing, incentivized affordable housing will be created, where the owners are private persons, with certain benefits (fiscal, urban planning) so that they are allocated for rent at reduced prices. This measure is necessary to increase the supply in the short term.
- Creation of a social housing fund: The government has committed to creating a public rental park and a measure that the real estate sector has been demanding for many years. This fund will help to finance the construction and maintenance of social housing.
- Impossibility of changing the public housing qualification: The public stock of social housing is considered heritage, so it is permanently protected and cannot be alienated. This measure offers protection to those households affected by the possible alienation of social housing that has occurred up to now.
- It is important to note that these measures are not final and may change in the final draft of the 2023 Housing Law. We will have to wait for the new law to be published to know all the details of these regulations.
Conclusion
The bill still has to go through a few more motions before becoming law and the opposition party has declared it will change it if they get to power net year.
There has been much noise from the real estate sector and analysts about the outcome of this bill, mostly negative. While the problems need to be addressed for sure and some sensible measures need to be taken to alleviate the tension in the market, it is not clear that this bill will remedy them at all.
The critics suggest that far from relieving the pressure, the application of this bill will reduce the available float from the market, increase rental prices substantially to cover the smaller price increments going forward , risk creating a larger opaque or black market, and the large tenants will divide the properties into separate companies to circumvent the law.
One of the big issues in Spanish housing is the limited powers owners have to evict tenants if they stop paying rents and this law does not address it.
Experiences in other markets such across Europe have misfired and provoked the opposite of the intended effect.
We are in a sensitive period as the elections for municipalities and autonomous governments are coming up in May, so this bill may well have a populist tint to it, its promoters hoping that, as it is a very sensitive issue, the electorate may just buy it!
As it stands, our call is that the overall desired effect will not happen and will only serve to create short term increases in rental prices and a more opaque market. We believe in time the bill will be amended.
We do not expect to see any significant negative effect on the value of homes in Ibiza as a result of this bill!
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