Spain's rental decrees struck down: 'the damage is already done'

Spain's rental decrees struck down: the damage is already done

According to a message spread in the debate, rental supply has plunged 61% since 2020 and prices have soared 40%. That is the starting point for discussions in recent days, after the regulatory package with which the Government intended to intervene in the rental market fell through. The most repeated conclusion is not that disaster was avoided, but that disaster was already underway before the decrees were struck down. The damage, they say, is the legal uncertainty now entrenched in the sector.

The landlord who hesitated no longer hesitates: he sells. This is the dominant view among participants. Small landlords have decided that regulatory risk does not pay off, and the result is a silent stampede: flats leaving the rental market and moving to the sales market. The feeling is that the legal framework can change by decree at any moment, and that anyone who rents is exposed to forced extensions, non-payment and squatting with few tools for defence. With that panorama, supply contracts and the price rises for those who remain.

Why is rental supply collapsing?

The most repeated argument is that price intervention discourages investment. If the landlord cannot update the rent according to the market, if the tenant can stay for years with a frozen rent and if eviction for non-payment becomes a judicial calvary, the calculation changes. Renting stops being a business and becomes a lottery. The result is what is already seen: fewer flats on the market and higher prices for those that remain.

Some argue that the problem is not regulation, but the lack of public housing and the weight of investment funds. The most optimistic calculation assumes that with more construction and more public housing stock, prices would fall. The pessimistic scenario starts from the fact that without touching land, taxes and licences, any measure is a patch. And in between, the evidence that the market is narrowing on both sides.

The solvent tenant who can no longer find a flat

One of the most commented paradoxes is that of the profile that theoretically should have it easy. A couple with children, with a steady paycheck and a guarantor, looking for a school in the area and planning to stay for years. That tenant, they say, is ideal for any landlord. But the reality described is different: the flats that come up are offered as seasonal rentals, with fraud of law, to circumvent rental regulations. The result is that a normal family cannot compete with that format.

The case told is that of a police officer and his family who could not rent a flat for 2,000 euros a month. In the end, the property ended up with two people per room on a seasonal basis. It is not an isolated anecdote, according to the account: it is the symptom of a market that has fragmented into two speeds, that of the seasonal contract and that of residential rental, which offers fewer and fewer units.

The real cost of housing: land, taxes and licences

There is a calculation that has been repeated and that should be examined closely. According to that thesis, the real cost of a home without the add-ons would be a fraction of the final price. The breakdown used is as trinc: land accounts for around 30% of the cost, taxes around 40% and regulations and licences another 20%. Added together, the official cost multiplies the pure construction cost several times over.

The conclusion drawn is that the three factors depend on political decisions. If land were cheaper, taxes reduced and licences streamlined, the final price would fall. The problem is that none of the three has been touched, and the housing debate has focused on price controls, which act on the symptom and not the cause.

Legal uncertainty as a price factor

Beyond the specific decree, what has taken hold is the feeling that the framework can change at any moment. That has a direct effect on supply: the landlord who hesitated between renting or selling, sells. The one who had an empty flat, leaves it empty. The one who thought of buying to rent, does not buy. Each of those decisions removes units from the market and pushes prices up.

The discussion about whether this wins or loses votes has also been present. Spain is a country of homeowners, and tenants are a minority. The paradox pointed out is that the measures protect current tenants but close the door to future ones. And in a context of early elections, every regulatory decision is also read in electoral terms.

What happens now with the rental market?

With the decrees struck down, the immediate scenario is one of uncertainty. Supply continues to fall, prices continue to rise and landlords still have no incentives to return to the residential market. The general feeling is that the problem has not been solved, only postponed. And that the next regulatory attempt, if it comes, will find an even narrower market.

The question left in the air is whether anyone with decision-making power is willing to touch land, taxes and licences, or whether the debate will continue to revolve around price intervention. Meanwhile, the tenant looking for a flat keeps browsing portals with fewer and fewer options and higher prices. And the landlord who hesitated, no longer hesitates.