Spanish government drafts ambitious housing bill, but opposition vows to ignore it

The leftist administration of Pedro Sánchez wants to rein in soaring rents through tax incentives and caps, a move conservatives are calling ‘suicidal interventionism’

Apartments for rent in a building in downtown Madrid in August.
Apartments for rent in a building in downtown Madrid in August.INMA FLORES (EL PAIS)

An agreement between Spain’s governing coalition partners on the need to overhaul housing legislation could soon introduce new rules in the rental market, including caps on price hikes by landlords and higher taxes for vacant properties.

If the draft approved on Tuesday by the Cabinet gets parliamentary approval, it will add Spain to the list of European countries with rent control. Soaring rent is an ongoing issue in a country where investors and real estate trusts have been buying properties from Sareb, the “bad bank” set up by the government after the property bubble burst in Spain, and which is designed to help lenders offload their toxic real estate assets. The draft law’s cap on rent will target this kind of real estate owner. A study by the Bank of Spain found that the average cost of rent rose 50% between 2014 and 2019.

Prime Minister Pedro Sánchez of the Socialist Party (PSOE) and junior partner Unidas Podemos said the law is also necessary in a country where young people cannot afford to move out of the family home until the age of 30 on average, compared with 26 in the European Union. Spain’s youth unemployment rate is also among the EU’s highest and stood at 40% at the end of 2020, while a precarious job market further frustrates young people’s attempts at independence.

The government is planning to give direct housing aid to people between the ages of 18 and 35 whose income from work is no more than €23,725 a year. The monthly check of €250 would be available for a maximum of two years, for a total of €6,000 in aid. Transportation Minister Raquel Sánchez said on Wednesday that between 40,000 and 50,000 people will benefit from this initiative. There are nearly 600,000 low-income tenants in that age bracket in Spain, according to the National Statistics Institute (INE).

We will not raise property tax on vacant homes. It is an attack on private property
Madrid Mayor José Luis Martínez Almeida

But the main points of the draft legislation – caps on rent for large landlords and higher local taxes for owners of vacant units – cannot be directly enforced by a national law; instead their application would be devolved to regional and municipal authorities. And the main opposition Popular Party (PP), which is in charge of five regions of Spain (Andalusia, Madrid, Galicia, Castilla y León and Murcia) as well as four major cities (including the Spanish capital) said it will not apply the law.

The new legislation also seeks to protect subsidized housing from privatization, as some regional and local governments have done in the past. But again, power over this matter ultimately falls to regional authorities. The Basque Country, for instance, has had its own housing law since 2015.

On Wednesday, PP president Pablo Casado called the draft legislation “suicidal interventionism” and pledged to take the case all the way up to the Constitutional Court if the bill gets parliamentary approval.

One of the measures contemplated by the draft is a surcharge of up to 150% on a local property tax known as Impuesto sobre Bienes Inmuebles (IBI) for vacant properties whose owner has four or more residential units to his or her name. Second homes are not affected by the measure, nor those that are listed for sale or for rent; neither are properties used by people who have to travel for work or educational purposes, or properties that are caught up in legal disputes.

But the mayor of Madrid, José Luis Martínez Almeida of the PP, has already warned that his government will not apply this fee if the legislation is passed. “We will not raise IBI on vacant homes. It is an attack on private property with very little precedent, and it will be useless because it will not solve the existing problem,” he said on Tuesday.

In any event, the executive is preparing for a long legislative process: in documents sent to Brussels in connection with Covid-19 recovery funds, the Spanish government estimated that its housing bill might secure final approval in the second half of 2022.

Details of the bill

What is an “área tensionada”?
Rent control would be achieved through tax incentives for individual owners who lease their property and through caps on rent for large landlords. But this would only apply in so-called “áreas tensionadas,” literally areas in a state of tension, meaning those where rent has risen more than five points above the Consumer Price Index (CPI) in the last five years, and where average rent is more than 30% of average household income in that area. This could be a neighborhood, a district, a municipality or even an entire region, in theory. It is up to regional governments to apply for “área tensionada” designation. An analysis by EL PAÍS based on available data suggests that 109 municipalities could be classified in this category. Most of them are located in coastal areas and on the islands, followed by Madrid.

What will happen to rent in those areas?
Small landlords, who make up the majority of the rental market in Spain, will be offered tax incentives not to raise rent, while large landlords will see caps on rent. As for tenants, when their lease expires they have the right to extend it in the same conditions, save an increase to reflect the annual CPI rise.

What is considered a vacant home?
The national draft legislation talks about owners of four or more properties (regardless of whether the owner is a private person or a company) who keep one or more of them vacant without good cause. Second homes are not included in the definition, nor are properties currently listed for sale or for rent, or units used by people who need to travel for work or educational purposes, or properties caught up in legal disputes. In any case, the rise in IBI tax would have to be implemented by the local council, which can choose whether or not to adopt the measure.

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