New Housing Law Puts Rental Property Investments at Risk
New Housing Law Puts Rental Property Investments at Risk
The Spanish government’s new housing law has caused serious concern among real estate investors. The regulation could jeopardize more than a third of new rental housing supply planned for the next five years.
While the industry questions whether the regulation will be applied in practice, the mere announcement has scared away major funds and insurance companies with ambitious investment plans in Spain. Industry sources warn of confusion and legal uncertainty caused by what they consider “electoral and discriminatory measures.” One of the complaints heard: “Spain is the only country in Europe that discriminates against property owners.”
Market Context
The law emerged amid a build-to-rent boom. Major international investors have entered the market, including Nuveen, Primonial, Deutsche Bank’s DWS division, Partners Group, ASG, Aberdeen, AEW, and Patrizia. Existing players—Azora, CBRE GI, AXA, Redevco, and others—continue expanding their portfolios.
According to the EY Housing Property Telescope report, construction of 28,000 new rental apartments is expected by 2025. Government measures could freeze “at least a third” of this supply—around 10,000 homes.
EY analysts note that price control mechanisms create risks of project cancellation for those in the design and financing stages, and that “these measures will slow foreign investment in our country, since institutional investors such as Ares, Nuveen, Primonial, and DWS are behind rental housing construction.”
Investment Data
In the first nine months of 2021, build-to-rent investments reached 990 million euros—25% more than in 2020. Investments in completed rental products totaled 502 million euros—an 80% year-over-year growth. Meanwhile, rental projects account for only 5.4% of the total volume of planned new housing.
Expert Opinions
Samuel Poblacion, National Director of Housing and Land Division at CBRE Spain: “Such measures may create uncertainty in international capital markets, for which Spain is an investment target, and deter investors from our country. This could affect multi-year business plans, where investors do not welcome changing the rules of the game midway.”
Miquel Echavarren, General Director of Colliers International Spain: These measures force investors to assess the “risk” of building rental housing in autonomous communities with different political leadership. He warns of European precedent, particularly the Swedish example: “State intervention reached the highest level in Europe and led to rental housing queues in Stockholm of almost 15 years, a thriving black market, consolidation of ghettos within the city, and radical reduction of new supply.” He concludes: “More or less aggressive government intervention in this market has been extremely harmful and had an effect directly opposite to what was intended.”
Enrique Losantos, General Director of JLL: He predicts that law application will remain “residual” while housing powers remain at the regional level. “With very specific exceptions, no autonomous community will want to stop rental housing investments or reduce the rental housing stock—in accordance with statements already being made.” Losantos emphasizes that rental prices naturally decrease when supply increases: “Any price intervention leads to supply reduction, as we’re already seeing in some European cities—Berlin, Stockholm, and others—where a very serious rental housing shortage problem has emerged.”
Luis Martín Girado, Corporate Business Development Director at Gesvalt: Build-to-rent projects heavily depend on financing and often lack sufficient banking support. “A law like the current one, which changes pre-established rules of the game, intervenes in market rental pricing and limits it, and creates legal uncertainty, is a serious obstacle for projects of this type.” He notes this will slow projects as it will require reviewing “the economic viability of each one.” Regarding large owners: “Large owners, erroneously called vulture funds or abusive funds, own no more than 5-6% of rental housing stock, while the rest belongs to private individuals.”
Carlos Zamora, Head of Residential at Knight Frank: “Demonizing” the investor is not a solution. “To ensure affordable housing, it’s best to bring social housing to market and encourage public-private partnerships.” He warns: “Many investors choosing Spain as an alternative may leave, feeling regulatory uncertainty. You cannot change the rules of the game midway.”