09 May 3 fundamental issues of the new Housing Law
The Spanish government has approved a new housing law which regulates rental prices in stressed areas, protects vulnerable people, and defines large landlords. The law includes tax incentives for landlords to lower prices, a redistribution of initial expenses between tenants and landlords, and protections for public housing parks. With this new law, the government aims to create a more sustainable and affordable housing market.
A few weeks ago, Congress approved a much debated new Housing Law which includes several issues that had not been a part of any regulation previously. The new law includes:
- The regulation of rental prices in stressed areas, with the creation of a new reference index.
- The protection for people in vulnerable situations and a relaxation of the requirements for the administration to declare a stressed market area.
- And a new definition of the figure of large landlords.
The text also includes a different distribution of the initial expenses between tenants and landlords and tax incentives designed so that owners have incentives to lower prices or create an optional system for local entities through the Real Estate Tax (IBI) to encourage the mobilization of empty homes. For the first time, public housing parks are also protected, prohibiting their sale to investment funds, and land reserves are extended to subsidized housing.
The rent cap, which determines the maximum price that landlords can charge, is one of the most important points of the law. Currently, the ceiling is set at 2% for all rental housing but will be raised to 3% next year. From 2025, a new index will come into force, which will only affect hot zones, to avoid uncontrolled increases as a result of fluctuations in recent years. The regulations will affect homes owned by both large tenants and small landlords and will regulate both contracts for properties already on the market and new ones. These caps will be established depending on the type of contract and ownership. Thus, those of small owners will be regulated by indexing to the previous rent in force, while for large owners, it will be done by applying the price containment index. In the case of a property that enters the rental market for the first time and belongs to a small landlord, the reference will be the price index.
The requirements for regional and local governments to consider a stressed area are lowered. With the new text, the declaration of a stressed area can be made effective when only one of the two conditions established by the law is met: that the financial effort exceeds 30% of the average income –a condition that is maintained–, or that prices have increased at least three points above the CPI. The declaration of the stressed area must be made by the autonomous community or municipality and will be reviewed every three years, although it may be reversed earlier in the event that the market has relaxed. In addition, the regulation includes a tax rebate system in the IRPF for those owners who have rented housing in stressed areas. This reduction may reach 70% in the case of the incorporation to the rental housing market in areas with a stressed residential market and rented to young people between 18 and 35 years old.
The law improves the regulation of evictions and the protection of vulnerable families. An arbitration system will be applied to encourage agreement between landlord and tenant. In these cases, the authorities must promote their adequate relocation and access to decent housing, taking into account their conditions of social and economic vulnerability, as well as their personal and family circumstances. In addition, evictions without a predetermined date and time are prohibited, and new extensions are included in the launching procedures, which will postpone the processes for more than two years.
The redesign of the figure of a large landlord will affect both individuals and legal entities. The regulation gives the option to the autonomous communities to reduce from 10 to 5 the number of dwellings that a landlord must own in a stressed area to be considered a large landlord. When renting in these areas, a price containment index will be applied. Besides, –and this applies both to large and small landlords– the owner, not the tenant, will be responsible for the property management and contract formalization.
The new law aims to protect both tenants and landlords and provide a stable and affordable housing market. It also aims to encourage landlords to lower prices by providing incentives, making it easier for people to find homes to rent and, ultimately, to create a more sustainable housing market. As always, only time will tell if the law deems to be effective and positive for the market, considering both the landlord and tenant’s expectations. For the time being, the fact that Congress addressed this matter is already an important and positive sign.