Renting in Spain makes no sense: just €500 per €100,000 of property
A forum user argues that rental yields in Spain hover around 3%, below inflation, which explains the collapse in the supply of rental homes.
English · Original discussion in Spanish · Published
Renting in Spain makes no sense: just €500 per €100,000 of property
A €100,000 apartment should rent for €500 a month. This is not a bill, an electoral promise, or the slogan of a tenants' platform. It is the minimum financial floor that, according to a calculation making the rounds in the debate, any self-respecting investment must meet: cover inflation and expenses. The problem, according to this analysis, is that in Spain that floor is rarely met. And when it isn't, capital flees. The figures being cited are stubborn: the gross yield on residential rentals would be around 3%, below the official 5% inflation rate. On those numbers, buying a flat to rent it out is, in the words of those defending this thesis, "an insane asylum of an idea."
The rule of thumb: €500 per €100,000
The starting point is a simple rule: for every €100,000 of purchase price, the landlord should take in €500 a month. The figure comes from demanding a 5% net annual return on the capital tied up. From that €5,000 a year, you must subtract property tax (IBI), community fees, waste collection and repairs. The result: €500 a month as an absolute minimum. If the flat is worth €200,000, the rent should be €1,000. If it's worth €300,000, €1,500. The logic is that of any investment: if the return doesn't beat inflation, capital is being destroyed.
The corollary is uncomfortable for the tenant. If rent must be €500 per €100,000 of value, then only homes worth up to €80,000 are rentable if you want to pay €400 a month. How many €80,000 flats are there in Madrid or Barcelona? Practically none. The conclusion is that the problem is not the price of rent, but the price of housing. "They should be protesting the price of BUYING a home," the argument goes, because rent is a direct consequence of the purchase price.
A 3% yield that doesn't even cover inflation
The numbers used in the analysis are uncomfortably realistic. The average rental yield in Spain would stand at around 3%, according to the data cited. Official inflation, at the time of the discussion, was close to 5%. A landlord renting out a €200,000 flat for €1,000 a month gets a 6% gross return; but after taxes, expenses and vacant periods, the net figure falls far below the required 5%. If the flat is worth €300,000, the same €1,000 rent yields a 4% gross return, and the net return is simply ridiculous.
The comparison with other investments is devastating. A 10-year US Treasury bond offers around 5.3% with no worries, no tenants, no special assessments and no regulatory changes. An S&P 500 index fund has historically returned close to 10% nominal per year. "Putting capital into buying a flat to rent it out is burying the capital," sums up one of the posts. The landlord not only assumes the risk of non-payment; also that of squatting, an unexpected special assessment, and a legislative change that leaves them unable to recover their property for years.
The vanishing supply: 400,000 fewer homes
The debate includes a figure that, if confirmed, would be the economic story of the year: since Pedro Sánchez arrived at Moncloa (the Spanish prime minister's residence), the supply of long-term rental flats would have fallen by 44%. That's 400,000 homes no longer available. Not because fewer were built, but because owners have opted for other options: selling, tourist rentals, seasonal lets, or simply leaving the flat empty. In Catalonia, it is noted, the drop reaches 70% trinc the introduction of rent caps.
The cause-and-effect relationship being defended is direct: more regulation and lower expected returns miccionan less supply. And less supply means higher prices for what remains. The "Maricarmen Decree" —a reference to the Housing Minister— is presented as the final blow to an already ruinous business. The housing law, with its caps on increases and its forced extension of contracts, would have turned the landlord into a service provider with no power to set prices. The result: fewer and fewer landlords and more and more unmet demand.
The state doesn't want to be a landlord
The question hanging over the whole analysis is who is going to provide rental housing if private individuals abandon the business. The answer given is that the state has no intention of doing so. "The state doesn't want to become an affordable landlord because it would cost it money and it would become the villain of the story," the argument runs. Public administrations, it is pointed out, have spent decades failing to build enough public housing. And when they have tried, the result has been loss-making.
The comparison with the rice market illustrates the point: rice is freely produced, imported and sold, which is why no one can restrict its supply. Housing, by contrast, is "totally intervened" by city councils, regional governments and the central government. That intervention, the argument goes, is why there isn't more supply. If homes could be bought on Amazon, the problem wouldn't exist. The conclusion is that the rental market is not a free market, but an intervened one where prices do not reflect real scarcity.
The nineties experience: rooms for €300
Against the macro analyses, the account of personal experience adds texture. In the nineties, finding a room in a Spanish capital took days: you bought the classified-ads paper and within two or three days a room was available. The price: about 25,000 pesetas a month, roughly €300 in today's money. These were modest but decent flats, with a lift, appliances and central heating. The flatmates were young people, students and workers, mostly Spanish.
Today, that same room in a capital city costs four or five times more. Supply has contracted and demand has grown. The population has grown through immigration, but housing has not increased at the same pace. The result is an imbalance that pushes prices up. The conclusion drawn is that the problem is not a lack of flats, but a lack of flats at prices people can afford. And that, it is insisted, is not fixed with rent caps, but with more supply.
The Ibis hotel as a mirror of the market
One of the most striking comparisons in the analysis equates renting a home with renting a hotel room. An Ibis in Madrid costs between €50 and €135 a night. Per month, that works out at between €1,500 and €4,000. "And nobody thinks that's outrageously expensive," the post quips. The hotel offers a full service: cleaning, reception, security, utilities. The landlord offers an empty flat with a washing machine. Yet the difference in price is not that large in monthly terms.
The point is used to question the social perception of renting. While the hotel is a respectable business, the landlord is seen as a speculator. The conclusion is that the problem is not the price, but the expectation that housing should be cheap by definition, regardless of its opportunity cost. And that expectation, the argument goes, is incompatible with financial reality.
The figure that really jars is not the 44% drop or the 3% yield. It's that, on these numbers, residential renting in Spain has become an investment for which there is no rational justification. And yet there are still landlords. Most, probably, out of sheer inertia. Or because they haven't done the math. When they do, the supply will fall even further. And then there really will be no room for debate.
A €100,000 apartment should rent for €500 a month. This is not a bill, an electoral promise, or the slogan of a tenants' platform. It is the minimum financial floor that, according to a calculation making the rounds in the debate, any self-respecting investment must meet: cover inflation and expenses. The problem, according to this analysis, is that in Spain that floor is rarely met. And when it isn't, capital flees. The figures being cited are stubborn: the gross yield on residential rentals would be around 3%, below the official 5% inflation rate. On those numbers, buying a flat to rent it out is, in the words of those defending this thesis, "an insane asylum of an idea."
The rule of thumb: €500 per €100,000
The starting point is a simple rule: for every €100,000 of purchase price, the landlord should take in €500 a month. The figure comes from demanding a 5% net annual return on the capital tied up. From that €5,000 a year, you must subtract property tax (IBI), community fees, waste collection and repairs. The result: €500 a month as an absolute minimum. If the flat is worth €200,000, the rent should be €1,000. If it's worth €300,000, €1,500. The logic is that of any investment: if the return doesn't beat inflation, capital is being destroyed.
The corollary is uncomfortable for the tenant. If rent must be €500 per €100,000 of value, then only homes worth up to €80,000 are rentable if you want to pay €400 a month. How many €80,000 flats are there in Madrid or Barcelona? Practically none. The conclusion is that the problem is not the price of rent, but the price of housing. "They should be protesting the price of BUYING a home," the argument goes, because rent is a direct consequence of the purchase price.
A 3% yield that doesn't even cover inflation
The numbers used in the analysis are uncomfortably realistic. The average rental yield in Spain would stand at around 3%, according to the data cited. Official inflation, at the time of the discussion, was close to 5%. A landlord renting out a €200,000 flat for €1,000 a month gets a 6% gross return; but after taxes, expenses and vacant periods, the net figure falls far below the required 5%. If the flat is worth €300,000, the same €1,000 rent yields a 4% gross return, and the net return is simply ridiculous.
The comparison with other investments is devastating. A 10-year US Treasury bond offers around 5.3% with no worries, no tenants, no special assessments and no regulatory changes. An S&P 500 index fund has historically returned close to 10% nominal per year. "Putting capital into buying a flat to rent it out is burying the capital," sums up one of the posts. The landlord not only assumes the risk of non-payment; also that of squatting, an unexpected special assessment, and a legislative change that leaves them unable to recover their property for years.
The vanishing supply: 400,000 fewer homes
The debate includes a figure that, if confirmed, would be the economic story of the year: since Pedro Sánchez arrived at Moncloa (the Spanish prime minister's residence), the supply of long-term rental flats would have fallen by 44%. That's 400,000 homes no longer available. Not because fewer were built, but because owners have opted for other options: selling, tourist rentals, seasonal lets, or simply leaving the flat empty. In Catalonia, it is noted, the drop reaches 70% trinc the introduction of rent caps.
The cause-and-effect relationship being defended is direct: more regulation and lower expected returns miccionan less supply. And less supply means higher prices for what remains. The "Maricarmen Decree" —a reference to the Housing Minister— is presented as the final blow to an already ruinous business. The housing law, with its caps on increases and its forced extension of contracts, would have turned the landlord into a service provider with no power to set prices. The result: fewer and fewer landlords and more and more unmet demand.
The state doesn't want to be a landlord
The question hanging over the whole analysis is who is going to provide rental housing if private individuals abandon the business. The answer given is that the state has no intention of doing so. "The state doesn't want to become an affordable landlord because it would cost it money and it would become the villain of the story," the argument runs. Public administrations, it is pointed out, have spent decades failing to build enough public housing. And when they have tried, the result has been loss-making.
The comparison with the rice market illustrates the point: rice is freely produced, imported and sold, which is why no one can restrict its supply. Housing, by contrast, is "totally intervened" by city councils, regional governments and the central government. That intervention, the argument goes, is why there isn't more supply. If homes could be bought on Amazon, the problem wouldn't exist. The conclusion is that the rental market is not a free market, but an intervened one where prices do not reflect real scarcity.
The nineties experience: rooms for €300
Against the macro analyses, the account of personal experience adds texture. In the nineties, finding a room in a Spanish capital took days: you bought the classified-ads paper and within two or three days a room was available. The price: about 25,000 pesetas a month, roughly €300 in today's money. These were modest but decent flats, with a lift, appliances and central heating. The flatmates were young people, students and workers, mostly Spanish.
Today, that same room in a capital city costs four or five times more. Supply has contracted and demand has grown. The population has grown through immigration, but housing has not increased at the same pace. The result is an imbalance that pushes prices up. The conclusion drawn is that the problem is not a lack of flats, but a lack of flats at prices people can afford. And that, it is insisted, is not fixed with rent caps, but with more supply.
The Ibis hotel as a mirror of the market
One of the most striking comparisons in the analysis equates renting a home with renting a hotel room. An Ibis in Madrid costs between €50 and €135 a night. Per month, that works out at between €1,500 and €4,000. "And nobody thinks that's outrageously expensive," the post quips. The hotel offers a full service: cleaning, reception, security, utilities. The landlord offers an empty flat with a washing machine. Yet the difference in price is not that large in monthly terms.
The point is used to question the social perception of renting. While the hotel is a respectable business, the landlord is seen as a speculator. The conclusion is that the problem is not the price, but the expectation that housing should be cheap by definition, regardless of its opportunity cost. And that expectation, the argument goes, is incompatible with financial reality.
The figure that really jars is not the 44% drop or the 3% yield. It's that, on these numbers, residential renting in Spain has become an investment for which there is no rational justification. And yet there are still landlords. Most, probably, out of sheer inertia. Or because they haven't done the math. When they do, the supply will fall even further. And then there really will be no room for debate.
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Summary of a discussion on Burbuja.info - Foro de economía, actualidad y política., translated from Spanish and reviewed before publication. Read the full discussion (1153 replies).
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