The supply of rental housing collapses with the ceiling on rents

The Pisos.com real estate portal notes that in the last year the housing offer for rent in Barcelona has been reduced by 40%. With the pandemic, homes destined for vacation rental went on to be used for long-term rentals, but with the gradual recovery of economic normality last year there has been a significant drop in the supply or availability of rental housing, which Pisos.com calculates at that 40% and that the real estate agents also perceive in their daily activity.

The causes of lack of supply of housing to rent they are multiple. On the one hand, some of these homes are once again vacation homes or homes for foreigners. But in the real estate sector it is detected in practice that the legal framework of five-year contracts, the limitation on rising rents and regulatory uncertainties are causing owners to desist from renting homes and prefer to put them up for sale.

Ferran Font, director of studies at Pisos.com, assures that the phenomenon translates into a 40% drop in rental advertisements, while in the rest of Spain the fall, which also occurs, is less. In the case of Madrid, that drop is 30%.

The Government has decided to limit the increase in rent in the annual updates of housing rental contracts to avoid the application of the consumer price index (CPI) in the rent update, limiting the increase to 2% (due to proximity to the competitiveness guarantee index) due to the economic and social consequences of the war in Ukraine. For example, for a housing rental contract of 600 euros per month, the application of the new measure could lead to savings of more than 33 euros per month in rent payments.

For the facua consumer associationthe decision to limit the increase in housing rental contracts to 2% is “reasonable” but he believes it is necessary to extend this price control until at least the end of the year instead of limiting it only to the updates that are made until the end of June .

For Guifre HomedesCEO of the real estate amatthe limitation of the increase in rentals in Spain it is not the fundamental problem of the rental market. In his opinion, the big issue is the lack of a stable legal framework and an insufficient supply of rental housing that the environment tends to further restrict. “If the supply of rental housing is not encouraged, many tenants will not have an alternative housing to aspire to,” says Homedes. “It is absurd to think that an owner with 10 homes can influence the market”, reiterates Homedes, who considers that it is essential “to promote the rental of homes through measures that allow private investment in the purchase of housing with a legal framework without uncertainties .

Homedes It also warns of a collateral effect that is the aging of the housing stock. Behind the phenomenon of the growing sale of housing lies the worst state of rental housing and the paralysis of necessary reforms that ultimately leads to more than 60% of second-hand homes sold having an energy rating of E or worse. Also noteworthy is the fact that with the drop in rent, new construction of small one- or two-bedroom homes has been minimized due to lack of a market. Only 17% of homes sold in the metropolitan area were small.

For the Rental Home Owners Association (Asval) is “demonizing” homeowners, who are actually the ones who are capable of putting flats on the market for rent. “Landlords have always been on the side of tenants, and rise to the occasion, as seen with the covid crisis. Most landlords never fully transfer CPI increases to their rental income.” For this reason, this association considers that the 2% increase limit is “artificial” and that the most appropriate thing would be to limit the increase in income to the increase in underlying inflation and always in a limited manner in time.

Jose Ramon LeftyCEO of the Rental Negotiating Agency (ANA), criticizes that the Government “is late” with the limitation of rental prices and suspects that despite the fact that it is announced as transitory, it could be extended “with which there is a danger that it becomes another way of intervening the rental price, freezing the rent update mechanism provided for in article 18 of the urban lease law”.

Iñaki Unsain, president of the Spanish Association of Real Estate Personal Shopper (AEPSI), considers that limiting the rise in rents is making the owners assume all the costs, with “a gimmicky law that is going to have implications for the real estate market “. For Verónica Parellada, founder and CEO of Inmoself, the rent increase control measure based on the CPI “does nothing more than add instability to the legal framework of the value of housing as an investment, impoverishing the owners, and also adding insecurity legal status of occupation in Spain”.