Guide to new Spanish Housing Law approved by the Government

The Government today presented the draft of the new Housing Law, which includes rent control, a surcharge on IBI property tax for empty housing and new barriers for developers
Government's approval gives the first consent to the regulation that will be taken to Congress at the end of the year.

Now that the Council of Ministers has given the first go-ahead to the preliminary draft of the new housing law, it is clear that, despite the many squabbles, the government is capable of reaching agreements on thorny issues, especially when there is an urgent need to approve budgets. The problem is at what cost.

The Minister for Mobility, Transport and the Urban Agenda, Raquel Sánchez, was in charge of announcing the preliminary draft bill, which from today will be processed as a matter of urgency in order to take it to Congress at the end of the year. Sánchez took care to emphasise that this law "offers legal certainty to the owner and does not threaten the right to property. We do not think that it is going to pose a risk on investment funds," he said at the press conference following the Council of Ministers.
Views of Zaragoza, Spain
Spanish 2021 Housing Laws: What You Need to Know
But the truth is that there is no clarity as to when the regulation will be approved, nor which communities will start to apply it, what indices or metrics will be used to control price rises or empty homes, nor if there will be sanctions or how it is intended to control owners. If the private sector is breathing a sigh of relief right now, it is not because of the security that the law inspires, but because of the low expectations that it will be applied.

On the other hand, between the tug-of-war of negotiations that seemed to be dragging on forever, and the numerous leaks with the proposals of the socialists, it is normal that society's image of the law is plagued by doubts and inaccuracies. These are new features and key points of the law, according to the draft and preliminary text to which EXPANCION has had access.

Spanish 2021 Housing Laws: What You Need to Know

The main novelties are:
The government expects the law to be ready in the second half of 2022.
There will be a price freeze for small flat owners in stressed areas (with exceptions).
The law does not include penalties for non-compliance, but communities will be able to decide whether to impose them.
Communities that do not declare stressed areas will not be able to benefit their citizens with certain rent deductions.
Developers who delay construction will have to compensate their clients.
Developers will be obliged to set aside 30% of their dwellings for social housing, but administrations will have to compensate them.

When will the Law see the light of day?

What the Government presented yesterday was the preliminary draft of the Law on the Right to Housing. The final text can be consulted publicly from today, and contributions or legal reports from other ministries can be made.

The idea is that before the end of the year the text with these contributions will be submitted to the Council of Ministers for a second reading. Afterwards, between the end of 2021 and the beginning of 2022, it would reach Congress, where the government hopes to process the law as a matter of urgency. After that, there is no guarantee as to when it could be approved. Minister Sánchez clarified yesterday that "our scenario for approving this law would be the second half of 2022".

But ministry sources recognise that the parliamentary process could be slow. What's more, bearing in mind that in 2023 there will be general elections and the majorities in Congress could change, there is a good chance that this law will not even see the light of day and will be buried amidst amendments.

A year and a half to draw up an index that has not been achieved in three years.

United Podemos has been pressuring the PSOE for years to push ahead with rent control. The problem is that the backbone of this control is an official rent index that does not currently exist. The government has even produced one, which has taken three years, but it only offers data from 2015 to 2018, so it is neither recent, nor does it cover the cumulative period of five years that is needed. This is why the law incorporates a vacatio legis (absence of law), whereby once the law is passed, up to 18 months may pass before the price control comes into force. During this time, the administration will have to come up with an updated price index. For the time being, it aims to do so by using the rental register, where landlords will have to register the properties they rent out and how much they charge.

But it would be very optimistic to think that something can be achieved in 18 months that has not been in much longer. Needless to say, 18 months is the period leading up to the general election in 2023, which confirms the suspicion of a kick forward.

Who declares the stressed areas?

It will be the communities that, by means of a report demonstrating price tension, will be able to declare an area under stress. For this to happen, two factors will have to be present: the average effort of households to pay rent must exceed 30% of their income and the price of rents must have risen five points above the rise in the consumer price index (CPI) in the last five years.

What happens if a municipality wants to declare a stressed area but the community does not?
It is the communities that have this competence, so the municipality's hands would be tied.

Carte blanche for communities to impose penalties
When it comes to deciding what happens to homeowners who do not comply with price controls, the government gives communities the right to decide whether or not to impose penalties and how much they will be. This could lead to a mock price control (if the community decides not to control prices), as in the case of Catalonia, which imposes penalties of up to 90,000 euros.

Intervention of rents for companies with more than 10 properties

In stressed areas, companies owning more than 10 properties will have to set the rental price according to the reference index (which does not yet exist) and lower it if it is higher.
They will, however, be able to raise it in line with the CPI on an annual basis.

Will it affect existing contracts?
No. Rent control will apply to contracts signed once the measure comes into force and the 18-month vacatio legis period has passed.

Price freeze for the rest
All other owners (companies with less than 10 properties and individuals) of flats in stressed areas will have to fix the rent for a new contract at the price of the last contract signed.
For existing contracts they will have to choose between two options:
Extend their tenant's lease for another three years without raising the rent (they will be able to increase it annually with the CPI), as tenants can demand an extraordinary extension of three years. This would leave the total duration of the lease at eight years (small landlord) or ten (large landlord). The curious thing is that this three-year extension is precisely the length of time it takes to declare a stressed area, according to the definition that would be included in the law. For practical purposes, being able to extend a rental contract for three more years means the same as freezing rents for the three years of a declared stress zone.

Signing a new lease with the tenant (another five or seven years, depending on whether they are a small or large landlord). In this case, the rent could be raised by up to 10%, but only in three cases: if the contract lasts more than 10 years, if improvements are made to the property, or if an energy renovation is undertaken that leads to a saving of 30% in the consumption of non-renewable primary energy.

Compensation for developers

Spain, with social housing representing less than 2% of all homes, lags behind European peers such as Britain (17%) or France (14% ), where subsidized housing is more affordable.
The law obliges developers to allocate 30% of new developments for social housing (half of which must be social rentals), but the communities will compensate them for it. According to ministry sources, to compensate for obtaining this land, the administration will have to establish compensatory measures, whether economic or in terms of use, by offering land in other developments or areas of the city. This would oblige Catalonia, where the 30% reserve exists but the developers are not compensated, to pay back the companies.

Developers will have to compensate if they are delayed with the work.
In addition to the 30% percentage of new housing developments that developers will be obliged to set aside for social housing, news that has already come to light, another of the new features is that developers will be obliged to compensate their clients or insurers. In the event that construction is not started or is delayed, the client will be able to demand that the developer return the amounts paid on account, including applicable taxes and interest, which may include penalties of up to 25% of the amounts which return must be insured or that which corresponds according to the provisions of the communities' own regulations.

Surcharge of up to 150% on IBI

Property tax (IBI) is paid by the purchaser once a year, which can be divided into several installments. The annual tax rate is 0.4 percent to 1.1 percent of the property's cadastral valuation.
Local councils will be able to apply a surcharge of up to 150% of the IBI quota to residential properties that remain unoccupied. Any owner, both physical and legal, who has a property that has been empty for two years and owns more than four properties, may be subject to these surcharges. The IBI surcharge already existed, and it was 50%, but councils did not apply it because there was no clear definition of empty housing.

With the future Law, this definition is provided (if it has been empty for two years and belongs to an owner with four or more properties), and may increase to 100% when it has been empty for three years and to 150% in the case of properties whose owners have two or more flats in the same municipality. However, this measure is also likely to fall on deaf ears. There are currently no up-to-date official statistics on how many empty flats there are.
The government points out that it is the local councils that are responsible for compiling these statistics.


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