The measures needed to boost Spain's rental market and lower rental prices

Fernando Encinar, Head of Research at idealista (second left) at a conference to debate rental prices in Spain / Expansión
Fernando Encinar, Head of Research at idealista (second left) at a conference to debate rental prices in Spain / Expansión
2 August 2019, Redaction

The rise in the cost of renting in Spain is worrying not only politicians, but also the private sector. Faced with a lack of supply in some Spanish cities and an increase in demand, rental prices have risen faster than wages. Experts agree that it is vital to have a public-private partnership with private money on public land in order to provide affordable housing for rent. In addition, some voices advocate giving more legal security to private landlords to bring more real estate supply onto the rental market.

Fernando Encinar, head of research at idealista, advocates public-private collaboration. At a conference organised by the Spanish newspaper Expansión on "The future of the residential rental market", he assured that in general people are asking for a more professional real estate sector, but that they are distrustful of public-private collaboration. He also emphasised that the new rental law in Spain treats companies differently than individuals, something that shouldn’t happen.

Encinar proposes increasing the supply of housing and rejects theories that it’s not necessary to develop more housing because there Spain has so many empty properties because, according to the latest figures from the INE, 62% of empty homes are in towns with less than 50,000 inhabitants.

Miguel Oñate, director of Merlin Properties, points out that the crisis in the rental market hasn’t come about due to the regulations, but rather because of an increase in production. In order to build more, more capital is needed. "There is an awareness that it is necessary for private capital to enter into housing production or there will be a shock," he said.

That financing will come mainly from investment funds, since banks cannot enter with the same force as it is not their business and the Spanish administration doesn’t have the muscle to do so. Investment funds should be seen as the government’s only ally because Spanish banks cannot enter into this equation. To carry out an effective housing policy, the only players can be international and private institutions: funds and Real Estate Investment Trusts.

Javier Rodríguez Heredia, a partner at Azora, said that 23% of the housing stock in Spain is currently for rent, compared to 34% in the European Union. This means that in Spain there are almost 6.5 million homes for rent. He considers that the country still has some way to go to reach the level of Europe.

He also agrees with Oñate in pointing out financing as the main cause of price tensions: young people cannot get access to mortgages because they need savings. "Many people rent out of necessity, not choice. We have to build 2.4 million houses in the next 15 years. It is something that can be done, but it involves an investment of up to 300,000 million euros and it’s not clear where we’ll get it because it’s impossible for it to come out of public funds," stresses Rodriguez Heredia.

Fernando Lacadena, president of ASIPA, agrees. He believes that "by themselves, public administrations will not be able to finance between 1.5 and 2.5 million new homes for rent. Professional operators and institutional platforms are an essential part of the solution and not of the problem," he said.

"It is an indisputable fact that the residential rental market is in a state of flux. And so is the fact that there is a serious problem of a shortage of available houses, especially for young people and for families struggling to make ends meet," says Lacadena.

How the new rent law affects the market

Eduard Mendiluce, managing director of Aliseda y Anticipa, assures firmly that the royal decree law on rents that has been in force since last March has affected the long-term leasing market, with a reduction in supply and an increase in prices. In addition, he believes that limiting extra payments to two months of rent on top of the one-month deposit has also led to an expulsion from the market of tenants who don’t have savings.

He is very critical of this regulation, and so proposes not regulating, but rather encouraging and subsidising property owners fiscally. He would also like to see a special clause added to the Urban Leasing Law (LAU) to make contracts shorter so lessors can put a rental price below the market price for tenants at risk of social exclusion or with solvency problems.

Finally, he proposes supplementing individual tenants’ rents with the public funds.

PSOE defends the 2019 rental law

During the conference, Beatriz Corredor, a minister of the PSOE socialist party in Spain, highlighted that the new law is a return to the one approved in 1994, which "had almost 20 years of stability and brought together rules to balance [the relationship] between landlords and tenants”.

Corredor noted that Pedro Sanchez’s left-wing government has launched the ‘Plan 20,000’ to start the process of promoting public housing through the Sepes land organisation and ICO financial institution via public land use rights. Young people will also recover a basic income when they leave home. "Statistics about this income saw a growing number of young people leaving home, but there was no increase in rental prices by landlords," she added.

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