Cap on rents and tax benefits for landlords who lower prices: new Spanish housing bill

Spain's cabinet passed a new housing bill on Tuesday that attempts to tackle soaring prices with measures including a cap on rents and tax benefits for landlords who lower them.

Yet, it faces an uphill battle to be greenlighted by Congress – the Catalan government says it is "disappointing" because it does not offer anti-eviction measures and clashes with a similar law in Catalonia, which has limited rent prices since September 2020. The parties that make up the cabinet in Barcelona, pro-independence Esquerra and Junts, may be needed for the bill to get through Spain's lower chamber. Meanwhile, the People's Party, which leads the opposition in Congress, has said they will not enforce the bill in the regions and local councils under their control.

Check out our podcast, published in June, on soaring rents in Barcelona for an in-depth report on the underlying crisis: 

Presented by the Spanish transport minister Raquel Sánchez on Tuesday, the law, if approved, will recognize the existence of certain "tense housing areas," such as those that exist under the Catalan housing law, in which further measures to control rent prices will apply and a 'reference price' will be established.

In these specific zones, for instance, tenants will be allowed to request an annual contract extension for up to three years without experiencing a price hike.

Also, the rent price in new contracts will be the same as the previous one in 'tense housing areas' if the cost is under the 'reference price' when the home is owned by a big landowner, that is, a person or company who has over 10 homes – not including garages or storage rooms – or estates that are over 1,500m2.

'Tense housing areas' might not be enforced until 2024

Yet, these measures might not be enforced until 2024, because Raquel Sánchez said the required parliamentary procedures might not begin until the end of 2021, and the bill gives 18 months to establish the 'reference prices' and other criteria needed for this new system.

The new law establishes that council tax can be raised by up to 150% when landlords of at least four flats in the same municipality have one or more properties that have been empty for over two years.

Also, landlords will see the income tax they have to pay for the money they earn on rent reduced by up to 90% if they lower prices for tenants by at least 5%. Tax benefits of 70% could be applied if the home is rented to young people between 18 and 35. 

The share of housing that is public in Spain is 1.6%, which is why the new regulation aims to push it closer to the western European average of 10%. Because of this, 30% of new construction projects must go towards social housing.  

Less ambitious than Catalonia's law

The Catalan government believes the bill presented in Madrid is "disappointing" and has the aim of centralizing the management of housing policies as the law may supersede one that was approved by the Catalan parliament in 2020.

A contentious rent cap law in municipalities with "tense housing markets" was approved in Catalonia in September 2020 that banned landlords from raising the cost of homes that had been rented out below the Average Price Index in the past five years and set new contract prices according to it.  

While areas can be declared tense housing markets for five years under the Catalan legislation, in Spain this is reduced to three years. 

In June, months after the People's Party lodged an appeal against the law, the Spanish government announced that it too would challenge the law's constitutionality in Spain's Constitutional Court, but did not request that the court put the measure on hold until a ruling was issued. 

Talking to the Catalan News Agency (ACN), several real estate agents agreed that the law put forward by Spain benefits landlords more than Catalonia's as it provides them with more tax breaks.