The Government has announced a series of measures regarding housing. The most notable is the one related to the limiting rental prices with the aim of curbing rent increases in cities like Madrid, Barcelona, or Málaga.
Could these limitations have this limitation/regulation of prices in the medium term? Real estate professionals see disadvantages. Why?
The decree law includes a reference index for rental prices of homes and requires the landlord to communicate it to the tenant before signing the lease and that it is included in said contract.
Another effect is that it could curb job mobility, generate mismatches or encourage undeclared payments. The study, in general terms, establishes that there could be three rental controls. Rent could be completely frozen, have some flexibility, or be controlled throughout the duration of the contract by the same tenant, which could vary between tenants once a new contract is formalized with a different tenant.
In case of non-compliance, the owner can incur fines of up to 9,000 euros, he explains Iñaki Unsain, president of the Spanish Association of Real Estate Personal Shoppers. "But the intention of the Barcelona City Council is for this index to be applied mandatorily, which will provoke a lot of 'picaresca'.
Drastic reduction of supply
Most of the professionals in the sector consulted see no advantage to this measure adopted by the Government. Óscar Martínez, president of the Professional Association of Real Estate Experts, he believes that a measure of this kind leads to a decrease in the rental supply in the market. “And not having apartments in the rental market is the worst scenario. We must encourage the growth of supply and this will regulate prices.”
It also notes that there is another aspect that is not covered and that is the difference between the properties themselves, “those that are renovated, for example, must have a different price than those that are not. It is very difficult to regulate this issue well and very costly too.”
The limiting rental prices will have effects completely contrary to those intended, “reducing the current rental stock, and preventing the construction of a new one, while at the same time tightening the selection and evaluation of potential tenants." Probably these measures could reduce the number of promotions, raise rental prices and consequently create a black market to evade the price limitation.
Legal insecurity
In addition, and according to Toni Expósito, general director of Comprarcasa, in the event that this measure were implemented in tense rental areas, "we would be talking about a measure with a very limited impact." On the contrary, if this measure were imposed at the state level, when the problem is confined to certain areas of certain cities, "it would be intervening in the market creating legal insecurity that will always penalize the tenant."
A measure that does not favor the owner
For Jesús Duque, vice president of Alfa Inmobiliaria, this measure is very negative. “I believe that in many cases, the owners of these homes are individuals who have invested their life savings there as a way to supplement their retirement (which is also in doubt now).”
He explains that he sees no sense in maintaining a special regime for those who have more than 7 rented properties. “I believe it would not be fair or positive to place the responsibility for having an accessible rental stock on the shoulders of these citizens.”
Oscar Martínez sees it this way too, “most property owners who could rent their apartments are individuals, small investors who acquire thinking about the future or retirement. Many of these individuals will opt for selling.” He comments that some large companies have already put their properties up for sale.
At the same time, Iñaki Unsain states that setting maximum prices based on Reference Indices, in most cases, surprisingly ends up enabling the landlord-owner to set a price even higher than the market price.
As a consequence of all this, he believes that “there will be a diversion of investment in rental housing to those communities like Madrid, which have already announced that they will not apply the rental price regulation.”
What should be done then?
One solution could be for administrations to increase the stock of social housing.
Provide legal security so that those owners who prefer to keep their property empty for fear of being unprotected by the law can rent it out.
Generate trust. This is the measure proposed by Oscar Martínez, "We need to generate more trust in the landlord, the owner, so that more homes come onto the rental market."
Jesús Duque goes further. "That large holders of vacant homes be subject to a complementary tax in the contribution. Large holders of homes are the ones regulating the rental real estate supply and are fundamentally influencing prices directly."
The president of the Spanish Association of Real Estate Personal Shoppers believes that the solution lies in increase the supply with a public park of affordable rental homes from a public offer of residential rental, “solves the lack of available properties in the market in the face of increased demand.” He concludes that it is not easy because the problem with this measure is that it requires a long execution period and “of course, that is already thinking long-term and politicians are not inclined to that.”
