In 1987, Kevin Costner starred in a spy thriller called No Way Out. He was a Russian asset planted in American society as a sleeper agent. No matter what he thought, did, or said, he was trapped. Much in the same way, the Spanish government has painted itself into a corner and is now trapped – with no way out.
The tale started long before May 2023, but for simplicity’s sake, I’ll take that date as our starting point because any good story needs to start somewhere. This is when the government approved the new Housing Act (Law 12/2023). Real estate experts had long warned the government, even from the bill’s first drafts, that the proposed measures were going to frighten landlords and that they were going to pull their properties out of the market (reducing the supply stock), resulting in increased rental prices. The government, like a horse with blinders on, ploughed ahead and approved it.
As a result, Spain lost over 350,000 long-term rental properties in the following years, and prices started to skyrocket across the board. This law clearly marked an inflection point in rental prices, driving them steadily upwards, even to this very day.
In view of the unmitigated disaster, and how its measures backfired spectacularly, any sensible government would have conceded defeat, backpedalled, and approved different measures to heal and re-conduct the ailing rental market – well, not this administration.
Not only did they not backtrack, but they also doubled down, approving yet more laws that further dwindled supply and further pushed rental prices upwards across the country. And the moral of the story is that you simply cannot go against the laws of demand and supply.
Fast forward to October 2026, and the government approved two new Royal Decrees this week that threaten to kill long-term rentals. These laws were approved in the heat of the moment due to a high-profile eviction of an elderly woman called Maricarmen, aged 87.
The government seized the opportunity and took out of the drawer these two draft laws which had been gathering dust for months as they had failed to muster enough political support to approve them.
Long story short, I think these two emergency decrees are NOT going to fix the long-term rental market – even the government knows this. They are only going to make matters worse, add more legal insecurity and red tape, and will ultimately make rental prices soar to unprecedented levels unseen in peacetime as frightened landlords frantically pull their properties out of the market – yet again.
As I’ve written many times, the problem is that this government makes laws thinking only in half of the country and purposely sidelines the other half. When you pass a law, you pass it for everyone. When you pass laws on rentals, you also need to factor in how landlords are going to react to them; it’s all good and well to approve pro-tenant laws, but not at the expense of other people’s private property.
The main issue is that this government carries out lofty social housing policies at the expense of people’s private property again and again – this is not how life works. These ill-advised housing and rental policies drive landlords out of the market out of fear.
And the victims of the government’s misguided housing and rental policies always end up being precisely the vulnerable collectives the government vocally sought to protect: young people, the elderly, migrants, and mono-parental family units.
But the government already knows this all too well.
If the government wanted to fix the housing market, it could do so. It has all the legal means and tools at its beck and call. After all, the government wields all the power.
They need to either build more social housing and/or facilitate developers to build it (increase stock supply), reduce all the unnecessary admin red tape associated with construction, drastically cut down delivery timeframes, lower taxation on property (35% to 50% of house prices are taxes), and control migration.
But is the government really interested in fixing the housing market? In my view, the short answer is no.
It’s had eight years to fix it, and all it has done is make matters worse for everyone by stifling supply, with every new law it has enacted, including these two emergency decrees.
I’ll collate and abridge below in bullet points the proposed rental novelties so as not to complicate and overextend myself.
First decree
The first decree introduces a batch of measures to alleviate soaring rental prices:
- Banning tenant evictions until December 2030 (for tenants officially labelled as ‘vulnerable’).
- Banning “vulture funds” (property investment funds) from acquiring new property in Spain until 31-12-2028.
- Automatic 2-year extensions upon request to long-term rental contracts (safeguarding the contract’s conditions, i.e. agreed monthly rental) for contracts ending on or before 31-12-2028. Landlords may only refuse if they have worded a special clause into their contracts.
- Long-term tenants may now leave ahead of time (before the contract’s agreed end date) WITHOUT having to compensate their landlord financially, unlike now.
- Imposes limitations on updating the monthly rental in line with inflation (inflation officially hit 4.9% in September).
- Seasonal rents cannot be used outside their purpose (see below), and are limited to 12-month contracts, or under. If they are extended without the proper legal justification, they will be presumed to be long-term rentals with all the associated legal consequences this has.
As a gentle reminder, seasonal lets have a limited scope of use:
1. accommodation required for work reasons, or
2. a student let, or
3. medical reasons, or
4. looking to buy property
- Impose price limitations on renting individual rooms.
- Town halls are now empowered to levy a surcharge of IBI tax on empty properties (defined as standing empty for two years or more), ranging from 50 to 100% of the tax base.
- Town halls are now empowered to levy a surcharge of IBI tax on holiday rentals, ranging from 50 to 150% of the tax base.
- Holiday rentals under 30 days are now considered a business and will be treated fiscally as such. A levy of 10% VAT is applied to them. Going forward, landlords will be required to file quarterly VAT returns as they are equated to running a business.
Second decree
This second decree is far more dangerous, as it introduces – for the first time ever – what can only be labelled as ‘permanent occupational contracts’.
Meaning landlords stand to lose possession of their property for extended periods of time (spanning years or even decades). Starting at the statutory minimum of 5 years, and chaining multiple extensions over time to multiple decades, exactly like in Maricarmen’s case, who rented the same property for over 70 years.
In practice, making long-term rentals indefinite in all but in name (remember, with annual price increases capped by law at 2%, well below a rampant inflation of 4.9%).
- Introduces automatic and mandatory 5-year renewals (for physical persons) or 7-year renewals (for legal persons), chaining long-term rental contracts indefinitely.
- If a landlord wants to terminate a contract after the statutory minimum period (5 or 7 years), it must do so by compensating their tenant financially with the equivalent of 12 months’ rent (in cash). Contract termination now requires serving ahead of time 4 months’ legal notice for physical persons, or 6 months’ notice for legal persons. Failure to serve termination notice on time, will result in silent renewals.
Conclusion
Both of the new emergency decrees were defeated in a vote last Friday in Congress, as the government failed to rally enough political support to approve them. Many sighed with relief at the legal outcome. Despite what most people believe, the story is far from over. We’ve just closed a chapter and opened a new one.
The government announced on Monday, 5th of October, that it will call a snap election on the 29th of November 2026 and will dissolve the courts effective immediately. In the interim period, until poll day, a permanent commission is appointed by Congress to approve emergency laws.
Lo and behold, the Spanish government will sneakily attempt to resubmit the two decrees – again – with only minor tweaks to comply with procedural congressional requirements, for approval. And this time round, maths favours the government to pass the first decree, if not both.
This dark political manoeuvre has a strong waft of unconstitutionality, as the permanent commission’s purpose is not to approve laws that were rejected by the plenary session of Congress. In my view, there is no emergency or extraordinary reason which justifies the need to pass these two radical decrees, circumventing Congress.
However, if you think Spain’s Constitutional Court is going to fix this, you are wrong. It is firmly placed in the hands of the ruling administration, including its chairman, who was directly appointed by the government.
Unless something is done in time to derail both emergency decrees from being resubmitted to Congress for approval, the enactment of these two decrees would – in my opinion – be the death knell of long-term rentals in Spain as we know them. Both decrees, but especially the second one, constitute a frontal attack on private property.
In plain English, the government seeks to subsidise long-term housing accommodation (spanning multiple decades) at the expense of landlords’ private property. In effect, they want landlords to bite the bullet and rent out for extended periods of time, spanning decades, at a testimonial price that is a mere fraction of the real market rental price.
General Francisco Franco, Spain’s dictator, did in fact also introduce a rental scheme in 1950 called “alquileres de renta antigua” to protect and assist vulnerable social collectives post-Civil War at a time of great deprivation and housing shortage.
Rental scheme, which, incidentally, Maricarmen benefitted from up until very recently, renting out at a price that was considerably below the market price in a prime location in Madrid at the expense of her landlord.
The incumbent administration seeks to reintroduce and replicate a pre-Constitutional rental scheme that was indeed justified at the time, within the broader context of the aftermath of a fratricidal civil war, but has no place in a modern market economy.
In my opinion, the crux of the problem is that the government refuses to build more homes for ideological reasons (because General Francisco Franco built lots of social housing at the time and they basically refuse to go down the same route), despite a record deficit of 1,000,000 homes and counting, and keeps piling more pressure on both the rental and resale property market by purposely stifling supply.
At no time should governments tamper with housing supply and demand, much less artificially stifle supply for political gain. This only leads to rising house prices (and rentals), which in turn opens the door to widespread social discontent.
As I write these lines, the looming threat of the approval of these two emergency decrees has driven out of the rental market thousands of long-term rental properties all over Spain, including Madrid, which lost an estimated 20% within only 24 hours of its announcement, greatly cutting back on supply.
The government knew all too well that this would be the plausible outcome; no crystal ball is required, only logic. In my view, the thrust behind the two radical housing decrees obeys more to calculated electoral reasons rather than pursuing a genuine housing policy.
Most Spanish people are now priced out of the property market, having to resort to family (and even extended family) to secure mortgage loans with durations that now span multiple decades – madness. Housing has indeed become Spain’s number one problem and requires resolute bipartisan long-term policies, not temporary band-aids.
As a result of the ruling administration pursuing all these misguided housing and rental initiatives, property supply in Spain has dried out whilst demand (both domestic and foreign) remains strong and steady.
To sum up a long, winding conclusion, if these two new decrees are approved, especially the second one, I can only recommend landlords pull out – and stay out – of long-term rentals in Spain until the legal situation is cleared post-election. There is far too much uncertainty and legal insecurity to warrant renting out long-term. For clarity’s sake, please note my comments above do not apply to holiday homes (short-term rentals), only to long-term rentals.
For equality’s sake, a middle ground must be sought by lawmakers, and this is not it.
LNA-related services:
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