The Spanish Government is working on the new Housing Act. As of today, it is pending approval, although the forecast is for it to be passed before the upcoming elections on 28 May 2023.
Some of the main new developments in the Housing Bill are detailed below, focusing primarily, among other things, on capping rental prices in stressed areas, modifying the definition of large-scale landlord, limiting pass-through costs and increases, the rights and inflation regime, etc.
1. What's new in the upcoming Housing Bill
We must emphasise that as of the date of this note, the aforementioned Housing Act has not been finally approved. Therefore, the information set out below should not be considered definitive.
Extension of the designated high-demand areas
To declare an area as a stressed housing market, the following will be taken into account:
- That in the area in question the cost of the mortgage or the monthly rent exceeds 30% of the average local income.
- That the sale or rental price of the home has increased by 3 points above the CPI in the 5 years prior to the declaration of a stressed area.
Rent price regulation in high-demand areas
For new tenancy agreements, rent price caps will apply in strained areas. In contrast, no caps will apply in “non-strained” areas.
However, the criterion for establishing these limitations will depend on the owner's status.
- For large-scale landlords, a price containment index would apply, which is yet to be determined and will be set by each Autonomous Community.
- For small landlords, the price will be determined by indexing to the previously agreed rent, so only the corresponding increase can be applied, that is, 2% in 2023, 3% in 2024, and the new index that will apply from 2025 onwards.
Furthermore, an important new development is that increasing the rent price by adding expenses such as council tax, management fees, refuse collection tax, etc., is prohibited.
New definition for large-scale landlords
The new Housing Law considers a large landlord to be any natural or legal person who owns 5 or more properties. These must presumably be of an urban nature, and garages or storage rooms will not be taken into account. It is also likely that anyone who owns a built-up area of more than 1,500 m2 would be considered a large landlord.
Instead, small-scale landlords will be defined as natural or legal persons who own fewer than 5 residential properties.
Cap on rent increases by removing the RPI
For existing rental contracts and those signed after the new Housing Law has come into force, the annual rent update will be capped at % until 31 December 2023 and 3% throughout 2024.
By the year 2025, the CPI is expected to be abolished and replaced by a new benchmark index that will be used to update all rents and will be both more stable and lower than the CPI.
Agency fees paid by the vendor
The assumption is generalised that the payment of real estate expenses and fees arising from the rental shall be borne by the property owner.
Regulation of seasonal tenancies
The Bill includes an additional provision requiring the creation of a group to study this type of contract. It provides for said working group to be set up within six months of the entry into force of the Act in order to make progress on a regulatory proposal for the regulation of lease agreements for use other than as housing and, in particular, seasonal residential lease agreements.
Penalising empty homes
With the intention of bringing property supply onto the market, the new law allows town councils to apply a council tax surcharge of up to 150%. Specifically, if a property has been vacant for more than 2 years, the surcharge would be 50%, and if it has been vacant for more than 3 years, it would be 100%.
Additionally, an extra surcharge of another 50% is expected if the owner has two or more properties in the same municipality. Finally, we note that in new developments, 20% must be allocated to social housing, either for rent or sale.
2. Conclusions
We are facing a future Housing Law particularly focused on matters of tenancy, although it also refers to tax incentives for landlords, or measures in eviction procedures, and which in any case, will mean normative and restrictive regulation for residential property owners.