The Catalan rental law: doubts about its effectiveness and risk of adverse effects
Has the Catalan rental law influenced prices just how it was planned or has it had a negative effect on the Spanish real estate market? Read this article to learn the outcome.
A report by the chair of the UPF and Apce suggests that municipalities declared as stressed areas registered fewer contracts and fewer price adjustments.
Has the Catalan rental law managed to bring down prices or has it had a negative effect on the market? This is the question that has been going around the real estate sector for months, and not only in Catalonia. With the state law under negotiation between PSOE and Unidas Podemos, the results of the regional law may end up defining the Spanish law.
Has the Catalan rental law managed to bring down prices or has it had a negative effect on the market? This is the question that has been going around the real estate sector for months, and not only in Catalonia. With the state law under negotiation between PSOE and Unidas Podemos, the results of the regional law may end up defining the Spanish law.
The main problem that many analyses have encountered is that the impact of the Covid-19 pandemic on the market makes it very difficult to draw conclusions after a year of application of the regulation. In an attempt to shed some light on this situation, the chair of the Universitat Pompeu Fabra (UPF) and the Associació de Promotors de Catalunya (Apce) presented a report with a negative balance: in the last nine months, the municipalities that declared themselves to be stressed areas registered fewer rental contracts and fewer price adjustments.
The rental law applies to localities with more than 20,000 citizens whose municipalities have declared themselves as "tense" market areas. Currently, the figure stands at over 60 municipalities, most of which are concentrated around the Barcelona metropolitan area. In order to set prices, there is a reference index, which is calculated on the basis of the deposits that owners must deposit with the Catalan Land Institute (Incasòl) of the Generalitat.
The report analyses the Incasòl data and notes that, in the six months following the approval of the regulation, prices fell by 5.5%. "This decline cannot be attributed to the regulation because the pandemic is playing an important role in the adjustment," says Josep Maria Raya, professor of Applied Economics at the UPF and director of the UPF-Apce chair.
On the supply side, Incàsol data shows a 5.5% drop in the number of contracts signed in the fourth quarter, and a 19% increase in the first quarter of 2021. "Contracting has increased as a result of many tourist apartments that have moved to the residential market, but the traditional residential market is shrinking," explains the economist.
In this sense, the report tries to eliminate this cyclical factor to try to find out how the market is evolving. The result is a price drop of 4.87% with a fall in supply of 8.7%. If we take as a sample the municipalities with over 50 contracts registered – and are therefore statistically relevant – the drop in prices is 5.4% and a drop in supply is 12%.
Nevertheless, the report is cautious with its conclusions and points out that it is necessary to wait some more time to fully understand the impact of the Catalan rental law. However, it points out that the initial data confirms the disruptive effects of this type of regulation.
The rental law applies to localities with more than 20,000 citizens whose municipalities have declared themselves as "tense" market areas. Currently, the figure stands at over 60 municipalities, most of which are concentrated around the Barcelona metropolitan area. In order to set prices, there is a reference index, which is calculated on the basis of the deposits that owners must deposit with the Catalan Land Institute (Incasòl) of the Generalitat.
The report analyses the Incasòl data and notes that, in the six months following the approval of the regulation, prices fell by 5.5%. "This decline cannot be attributed to the regulation because the pandemic is playing an important role in the adjustment," says Josep Maria Raya, professor of Applied Economics at the UPF and director of the UPF-Apce chair.
On the supply side, Incàsol data shows a 5.5% drop in the number of contracts signed in the fourth quarter, and a 19% increase in the first quarter of 2021. "Contracting has increased as a result of many tourist apartments that have moved to the residential market, but the traditional residential market is shrinking," explains the economist.
In this sense, the report tries to eliminate this cyclical factor to try to find out how the market is evolving. The result is a price drop of 4.87% with a fall in supply of 8.7%. If we take as a sample the municipalities with over 50 contracts registered – and are therefore statistically relevant – the drop in prices is 5.4% and a drop in supply is 12%.
Nevertheless, the report is cautious with its conclusions and points out that it is necessary to wait some more time to fully understand the impact of the Catalan rental law. However, it points out that the initial data confirms the disruptive effects of this type of regulation.
Less price adjustment, greater social division
The study also includes data from the Tecnocasa real estate company, which allows for a comparative analysis between Madrid and Barcelona. "These are cities with historically similar tendencies but, after the application of the law, they maintain different behaviours", indicated Raya. The data point to a more pronounced decrease in Madrid, with a fall of 9.21%, compared to 5.07% in Barcelona. In this sense, the report speculates whether price controls have had the opposite effect to that intended by setting a land value for owners.
In fact, Raya goes further and reminds us that not all of the market is regulated, as there are exceptions, such as new construction or major refurbishment. "This situation will widen the social gap because it will reduce the number of rentals at more affordable prices. The owners will refurbish their homes to escape control," he added.
In fact, Raya goes further and reminds us that not all of the market is regulated, as there are exceptions, such as new construction or major refurbishment. "This situation will widen the social gap because it will reduce the number of rentals at more affordable prices. The owners will refurbish their homes to escape control," he added.
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