The new housing law and its consequences for the real estate sector

On October 26, the coalition government approved the New housing law 2021, which covers the limitation on the rental price in certain areas of the Spanish territory. This new housing law 2021 also defines what is meant by decent and adequate housing. “Decent housing is one that is habitable, that is accessible, that is energy efficient and that also guarantees access to basic supplies without their enjoyment involving an unaffordable financial effort on the part of citizens.” It was decided to clarify this concept because it has a lot of relevance to the measures taken by the government to regulate rent.

In this article we are going to review the points that this new law entails, how it affects the real estate sector and examples in other countries. The measures addressed in this new law are the following:

Public rentals in new housing developments

New construction promotions will have to reserve the 30% of the housing available to be used as a public park, half (15%) being used for social rent.

What is considered a “tense zone” in housing law

Declare an area or neighborhood as Tensioned area will depend on the State and each of the Autonomous Communities, a decision that must also be reviewed by the municipality's city council. If an area is declared tense, it will have a minimum duration of Three Extendable Years year after year to avoid a rise in rental housing prices.

One of the aspects that identifies an area as tense is the fact that the average rental price is equal to or higher than 30% of the average income of the inhabitants of the area in question. So if the average income of a neighborhood is 25,000€, the price of rents must not exceed €5,000 annuals.

Tax advantages for small landlords to lower the rental price

Smallholder landlords, that is, those who have less than 10 homes in their possession, will be able to qualify for Tax Incentives and great discounts with the objective of encouraging the reduction of the rental price in the homes they own. Such incentives may even reach 90% of the income that landlords obtain in the event that they agree to a reduction in the rental price. These are some of the bonuses that have been stipulated:

• 50% discount if the rental price is reduced by 5% compared to the previous contract.
• 70% discount if you rent for the first time to young people between 18 and 35 years old, or if it is a contract that involves improvements to the property.
• 90% discount if the landlord has a home in a declared area”Tensioned” The fact that the rental price is 800€ reduces it by 5%, i.e. 760€. As it is a tense area, the bonuses are greater than the situations mentioned above.

More taxes for empty homes

To encourage owners of Empty Houses To rent the property, even if it is at a lower price than expected, the government has proposed that landlords with more than four properties in the same municipality and their homes have been empty for more than 2 years will be charged a surcharge on the IBI rate of up to 150%. It is worth noting the nuance of the government, since the new regulation will take into account “the different competencies existing in the field”.

In this case, it must be the autonomous communities that decide whether to limit prices in tense areas or not.

Restriction of rent to homes owned by Large Landlords

Large landlords (more than 10 homes) must Adapt the rental price to the reference index of the area in which the property is located, especially taking into account the Tense areas mentioned above.

Aid Vouchers for Young People

With the new housing law, the Prime Minister announced a”Youth bonus” endowed with 250€ per month for the next 2 years. This bonus will benefit young people between 18 and 35 years old with an annual income of less than 23.725€.

Minister María Jesús Montero has explained that the mentioned youth bond will be limited by the price of renting flats with an income of 600€.

Regulation of evictions

Improved communication between judges and social services is necessary to ensure that Social Services are able to provide a housing response to those vulnerable households. To give more time and thus be able to solve this type of situation, it is proposed to expand 1 to 2 months The deadline for launching evictions when the owner of the property is a natural person, if it is a company, is 3 to 4 months.

Creating Incentivized Affordable Housing

Along with protected housing, the encouraged affordable housing, with the objective that these properties are intended for rent at reduced prices, which is considered a necessary movement for Increase supply in the short term.

“Privately owned housing, including third sector entities, to whose owner the competent Administration grants urban, fiscal or any other type of benefits, in exchange for allocating them to permanent residence on a rental basis or any other form of temporary tenure, to people whose income level does not allow them to access housing at market prices”.

Creation of a Social Housing Fund

It is committed to a public park for rent and a measure that the real estate sector has been demanding for many years. It should be remembered that since 2015, around 5,500 protected housing units have been created in Spain, of which less than 1,000 have been allocated to rent.

Inability to change the public housing rating

With the acceptance of this new law, the public social housing stock is considered to be Patrimony, so it will remain Sheltered permanently without the possibility of being alienated.

The indefinite qualification of protected housing is established, always guaranteeing a period of Thirty Years. Basic conditions are established at the state level, defining a permanent public protection regime for Protected housing that they are promoted on land classified as reserve. In all other cases, a minimum disqualification period of 30 years is set.

Main Consequences

It is clear that in this scenario we find two main agents, the tenants and the landlords, so it is also clear how and to what extent this new law affects each of them. However, the new law may affect third-party agents, let's see:

• Increase in unreported rent, which would equivalently reduce tax collection
• Decrease in supply in the event of a massive exit from the real estate market by landlords, which ironically would mean an increase in rental prices.
• Introduce huge price distortions with new and old rental prices, creating privileged rents.

How does this type of law affect other countries?

On several occasions it does not depend so much on the measure that is applied, but on the How this is applied, so it doesn't have to only negatively affect the real estate market. A very similar law was accepted in Berlin In order to stabilize to a certain extent the drastic rise in rents in the German capital, in this sense it seems that they have succeeded Curbing The Rise in Rents, while there has been no reduction in the tend nor investment in the real estate sector. Therefore, we must wait to see what decisions the Autonomous Communities make and how they will affect the real estate market and Spanish citizens.

Conclusion

As we have mentioned, we must wait to see the evolution of the measures and how the market adopts them, however since Reental we will always seek the best offers for our investors, minimizing any cost or risk, so this type of law would not affect our tokenized properties.

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