HARSH METHODS TO HOUSING CRISIS?Spain’s attempt at addressing the issue…

After extensive negotiations, Spain's Housing Law, also known as Ley de la Vivienda, has come into effect. This comprehensive legislation introduces several key provision aimed at regulating rental prices and enhancing the rights and responsibilities of both tenants and landlords.

RENTAL PRICES WILL BE REGULATED

To address the challenges faced by the stressed Market areas, or Zonas Tensionadas, limitations are imposed on rental prices. These areas either by having their Consumer Price Index (CPI)  five points higher than its respective provinces or by observing that families allocate an amount greater than 30% onto rent. Furthermore, owners with fewer than five properties must adhere to rent limitations outlined by the Ministry of Transport. These measures aim to empower communities and promote housing affordability.

RENT CONTROL INDEX

Previously, landlords had the right to raise prices each year in proportion to the CPI during the five year rental contract. Nevertheless, in 2022 and 2023, a fixed two percent ceiling tied to the CPI is enforced, followed by a three percent ceiling the subsequent year. Landlords with existing contracts must comply with these thresholds in order to prevent excessive rent hikes.

AGENCY FEES TO LANDLORDS

In a significant shift of responsibility, the new law transfers the burden of agency fees from tenants to landlords.  Moreover, owners are not allowed to pass on community expenses onto tenants or raise fees beyond what was initially stipulated in the contract.This provision aims to alleviate financial pressure on tenants and promote fair and transparent rental prices.  

IBI TAX PENALTIES

 Under the new law, owners who have unoccupied properties, will be subject to surcharges on the Real Estate Tax (IBI). If an owner maintains an unoccupied property for more than two years, provided they possess four or more properties, the property will be deemed “permanently unoccupied.”Penalties start with an increase of up to 50 percent on IBI taxes for properties vacant for more than two years, escalating to a 100 percent increase after the third year. Moreover, landowners with multiple unoccupied properties within the same municipality will also be subject to these surcharges. These penalties aim to incentivize landlords to make their properties available for rental, thus addressing the issue of housing shortages.

LANDLORD TAX INCENTIVES

Commencing on January 1st, 2024, landlords in stressed areas will experience changes to their tax benefits. Previously, landlords could deduct 60 percent of their rental income from their personal income tax payment. However, under the new law, this deduction will be reduced to 50 percent. Nevertheless, landlords can increase their tax deductions by lowering rental prices by at least five percent compared to the previous rental contract. In such cases, deductions can reach up to 90 percent, allowing landlords to pay taxes on only 10 percent of their rental income. Additional deductions of up to 70 percent are available for landlords who make their properties available to individuals aged 18 to 35 or rent to the public administration. These incentives serve to promote affordable housing options and support specific segments of the population.

Although the public is yet to evaluate the long term effect of this new implementation mechanism, it is being met with much approval.