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Measures to regulate rents in areas where housing is "stressed". A major change in who pays the fees charged by real estate agents. These are some of the features of the proposed new Spanish housing law, after the Pedro Sánchez government has come to agreement with its parliamentary partners on the text for the new legislation. After more than a year of negotiations, this Friday, the Catalan Republican Left (ERC) and the Basque party EH Bildu have announced agreement on the content of the new law, which is expected to be passed before the municipal elections on May 28th.

As explained by Bildu's Oskar Matute and ERC's Pilar Vallugera, the text will include special control for rents in stressed areas, a modification to the definition of "large owners", the creation of a new reference index on which the updating of contracted rental levels will be based, and a different distribution of real estate expenses and fees, among other features.

A 2024 rent cap and a new index

First up, one of the points that has generated most conflict during the negotiations is the rent ceiling, currently in force. Since last year and scheduled to last throughout 2023, the coalition government has imposed a temporary limit of 2% on increases in housing rents as a measure to contain inflation. Government junior partners Unidas Podemos and the rest of the parliamentary allies were committed to maintaining the ceiling and including it in the new law at this level, but the Socialists (PSOE) were reluctant. Finally, an extraordinary limit of 3% will be set on the increase in all rents, for both large and small owners, for 2024.

In addition, before December 31st, 2024, Spain's INE statistical agency will be tasked with creating a new reference price index, to be used for the updating of the contracts. This new index will replace the Consumer Price Index. Therefore, from 2025, the reference will be this new indicator which has been defined by the politicians as yielding "more stable and lower" price levels than those that result from the CPI. This measure will also be applied retroactively to contracts signed prior to the publication of the new law, which are currently subject to the CPI. In the case of small owners, however, these new limitations on rental rises will be partly offset by tax incentives to be included in the law.

Areas of 'rent stress' and how they are defined

The regulation of housing rents revolves around imposing special controls on areas that are regarded as 'stressed'. These are defined as areas where housing prices are high and are driving out tenants, and they may small zones - equivalent to Spain's census units that include only a few blocks - or larger areas.

However, it will not be the state that declares a specific area to be stressed, but rather, the responsibility of applying this measure, will be in the hands of the competent public authority, which is either the municipality or the autonomous community. Likewise, the declaration of a stressed area will be reviewed every three years. This point is controversial, since some administrations have already affirmed that they will not adopt the new standard.

And what are the requirements to declare an area as a zone of rent stress? One of the following two conditions must apply: either, that in that given area, the average cost of a mortgage or rent plus basic expenses and utilities exceeds 30% of average household income, or, that the purchase price or housing rent has increased at least three points above the CPI in the five years prior to the declaration of a stressed area.

In this regard, the law will allow autonomous communities to regulate all rents in stressed areas, whether the dwellings are in the names of large or small property owners. There will also be containment of rental levels which, in the case of small owners, will be achieved through indexing to previous rent levels, while for large owners, the price containment index will be applied.

If you own 5 dwellings, you're a large owner

Another of the major points that the law will take into account is the modification of the definition of "large holder". Currently, large owners are those who own more than 10 properties, but after the agreement announced this Friday, that number is halved, so that in a stressed area an owner of five dwellings will be considered as a large property holder.

In relation to this point, the law will also specify that for large landlords (individuals as well as legal entities) renting out property  in stressed areas, rent level limitations referenced to the new index system will apply. The objective of this measure is, as explained by the promoters, to prevent speculation and the hoarding of real estate by "vulture funds" and other investment funds.

Public and protected housing

As well, the new norm contemplates measures regarding subsidized housing, as well as the protection of public housing stock. In this regard, Matute and Vallugera affirm that public housing stocks will be protected, and sales to investment funds will be prohibited. Likewise, the percentages of floor area to be reserved for rent-protected housing increases from 30% to 40% on developable land (new housing development), while it will rise from 10% to 20% in the case of redevelopment or renovations of existing estates. The aim of this initiative is to promote protected housing with limited rent levels. 

Owners will pay real estate agencies' fees

One of the newest points contemplated in the law has to do with real estate agencies. According to this Friday's agreement, from now on the real estate expenses and fees incurred when renting a property will always be borne by the owner, instead of the tenant. In this way, the law aims to put an end to some current legal loopholes. It will also be illegal to increase rent via creating expenses, for example, obliging tenants to pay building expenses, garbage fees or any other charge not previously agreed.

New rules affecting evictions

Regarding evictions, the new Spanish housing law will incorporate new protection measures in the case of vulnerable families without a residential alternative. Thus, an arbitration system will be applied to facilitate agreement between tenant and landlord and, in the event of a failure to reach agreement, the necessary time will be granted for social services to offer residential solutions.

Judges in such cases will be empowered to set deadlines longer than the current ones for this to happen. Likewise, a one year extension may extraordinarily be applied to housing rental contracts in situations of proven social or economic vulnerability. Autonomous communities may establish their own mediation and residential alternative mechanisms that they consider appropriate.

The new law will also recognize the ability to use the state housing plan funds to offer residential alternatives for people at risk of eviction through subsidized social rents, rehousing for people in vulnerable situations or any other similar policy.