The Catalan Rental Law: Doubts About Effectiveness and Risk of Reverse Effect
The Catalan Rental Law: Doubts About Effectiveness and Risk of Reverse Effect
Has the Catalan rental law succeeded in reducing prices, or has it had a negative impact on the market? This question has been occupying the Spanish real estate market for several months now — and not only in Catalonia. Since a national law is being negotiated between PSOE and Unidas Podemos, the results of the regional law could determine the content of Spanish legislation.
The main problem many analysts have faced is that the impact of the Covid-19 pandemic on the market makes it extremely difficult to formulate conclusions after one year of regulation. Seeking to clarify the situation, the University Pompeu Fabra (UPF) chair and the Association of Developers of Catalonia (Apce) presented a report with negative results: over the past nine months, municipalities that declared themselves “stressed” zones recorded fewer rental contracts and less price adjustment.
The rental law applies to population centers with more than 20,000 inhabitants whose municipalities have declared themselves zones of “stressed” market. Currently, there are more than 60 such municipalities, most of them concentrated around the Barcelona metropolitan area. A reference index calculated based on deposits that owners are required to pay to the Generalitat’s Catalan Land Institute (Incasol) is used to establish prices.
The report analyzes Incasol data and notes that prices fell by 5.5% six months after the law’s adoption. “This decrease cannot be attributed to the law, since the pandemic plays an important role in price adjustment,” says Josep Maria Raya, professor of applied economics at UPF and director of the UPF-Apce chair.
On the supply side, Incasol data shows a 5.5% decrease in contracts signed in the fourth quarter and a 19% increase in the first quarter of 2021. “The number of contracts grew due to many tourist apartments transitioning to the residential market, but the traditional residential market is shrinking,” the economist explains.
In this regard, the report attempts to exclude the cyclical factor to assess the real market dynamics. The result: a 4.87% price decrease with an 8.7% reduction in supply. Taking only municipalities with more than 50 registered contracts (a statistically significant sample), the price decrease is 5.4%, and the supply reduction is 12%.
Nevertheless, the report is cautious in its conclusions and indicates that more time is needed to fully understand the impact of the Catalan rental law. However, the initial data confirms the destructive consequences of such regulation.
Less Price Adjustment, Greater Social Stratification
The study also includes data from real estate company Tecnocasa, allowing for a comparative analysis of Madrid and Barcelona. “These are cities with historically similar trends, but after the law’s introduction they show different dynamics,” notes Raya. The data indicates a more pronounced decline in Madrid — by 9.21% — compared to 5.07% in Barcelona. In this regard, the report hypothesizes that price regulation produced an effect opposite to the intended one, establishing a land value benchmark for owners.
Raya goes further and reminds that not the entire market falls under regulation: there are exceptions for new construction and properties after major renovations. “This situation will increase social stratification by reducing the number of apartments rented at more affordable prices. Owners will renovate their housing to escape control,” he added.