Hoteliers warn of a 'boom' in tourist apartments to escape rent control

In Barcelona, the number of apartments for rent has plummeted, and more and more owners are considering fleeing to seasonal or tourist rentals. This is the formula they have found to escape the price controls imposed in Catalonia. The Generalitat can intervene in conventional rentals, but it cannot control tourist or seasonal rentals, where landlords can raise prices without any limitations.

The same could happen with the new housing law that the government wants to bring forward. The tourism sector warns of the risk of a proliferation of holiday homes and seasonal rentals as an escape route from price controls. "Not realising this in this country is a strategic blunder," explain sources representing the sector. They regret that the new law does not include any measures to regulate holiday rentals.

Rent control can only intervene in the market in the case of conventional leasing, according to the Law on Urban Leases (LAU). Seasonal and holiday rentals are outside the scope of this regulation. The difference between one and the other has to do with the basis on which rent control is built. To justify its intervention, the government claims that housing must fulfil a social function. But tourist apartments are not considered to be housing, so they cannot be required to fulfil this function. According to the LAU, holiday homes or seasonal rentals are considered to be for "use other than housing", so it is not possible to require them to fulfil a function that they are not intended to fulfil.

There are currently more than 294,000 holiday apartments in Spain. To these should be added seasonal rentals. All these properties would already be excluded from price controls. The hoteliers' fear is that the stampede of owners fleeing from the law will lead to a boom in tourist apartments, a segment that neither the State nor the Administrations are able to control, where a regulatory tangle reigns in communities and town councils.

These fears are not just a mere prediction. In Barcelona this phenomenon is already taking place. "The owner who does not want to be obliged to lower the price due to the control of the Generalitat is going to switch to seasonal rentals," explains Gonzalo Bernardos, professor and director of the Real Estate Master's Degree at the University of Barcelona.

At the beginning of September, there were 10,900 apartments for rent in Barcelona, 42% less than a year ago, according to Idealista. "There is already a transfer from conventional renting to seasonal to get around the control. This will cause prices to continue to rise, while the regulated supply is sinking," adds Bernardos.

The price control does not affect tourist or seasonal rentals, but these do not work in the same way as conventional rentals either. To begin with, the contracts signed cannot be for more than one year in these cases, and the owners cannot access the tax benefits for letting a regular home.

This does not necessarily discourage landlords, since, as Bernardos explains, "the majority of rental contracts do not last three years on average". Far from being a disincentive, what could happen is that this trend could become yet another collateral damage for tenants: if more and more apartments are governed by a regulation that is not the usual housing regulation, rental contracts will not only not be limited by a price control, but will last less time, which will reduce tenant stability.

As for tax benefits, it should be noted that the new housing law cuts the personal income tax deduction that landlords can apply for renting an apartment from 60% to 50%, which can only be increased in certain cases. In the majority of cases, the profitability for tourist letting is higher than in case of conventional rentals. The president of the Federation of Tourist Housing, Bartolomé Gomila, however, points out that "today, owners of tourist housing are not looking for a profitability scenario as their first objective. The key is to generate confidence in the owners and unfortunately they don't have it".

The escape route to price control could be even worse for tenants if landlords choose to sell their properties. This is the consequence predicted by Idealista. "We do not doubt that a minority part of the market may take refuge in tourist or seasonal rentals, but we believe that it will not have any specific weight in the market: it is very possible that many properties that are or would have been rented will end up on the sale and purchase market. This is something we have already seen in Barcelona", explains Francisco Iñarreta, spokesperson for the Idealista portal.

When the government presented the future housing law, it wanted to make it clear that the most interventionist part of the control (the one that obliges owners to lower their homes for rent to a price set by the community) would only affect companies that own more than ten properties, that is, some 150,000 homes in Spain, according to the government's calculations. It is curious, because this figure represents almost half of the apartments that already escape rent control. Right now there are around 294,000 tourist apartments in Spain, according to the INE. Almost 300,000 apartments for rent that are not regulated by the Law on Urban Leases, where the owner can freely set the price, and where the duration of the contracts is less than a year, so that a proliferation of this market could end up fostering instability. But the tourist apartments boom could be even bigger. INE data show how the Covid-19 crisis has caused the number of holiday rentals in Spain to fall. In August 2020 there were 320,000 tourist apartments. But without tourists, owners had opted to switch to holiday rentals. The fear of hoteliers is that the new law will now provoke a reverse movement and increase unregulated supply.