Proposal for a new Housing Law

Considerations and analysis of the fundamental pieces of the proposal to the new housing law.

It is still too early to draw conclusions on the proposal for the new state housing law, as the final text of the regulation is still unknown. However, it seems that there is an agreement between the government’s partners on the fundamental pieces that should make up the law. The following is a breakdown of the main measures on which the new housing law will focus:

• Regulation of housing rental prices in stressed urban areas when the landlord is a large housing holding company, i.e. a company that owns 10 or more dwellings. The purpose of this measure is to limit rent to market prices in areas where there is a highly stressed housing market. If we look at what has happened in other areas where price regulation has been implemented, such as Berlin, Catalonia, Paris or San Francisco, it does not seem that this measure will have positive effects; on the contrary, we can expect supply to fall as it is a disincentive for investment in new housing or renovation. Furthermore, we will have to wait and see how the partners in government regulate this aspect, as it should not be forgotten that there is a certain risk of unconstitutionality with regard to the freedom of price agreements in the light of the appeal admitted by the Constitutional Court against the recent Catalan regulation.
• It will include the obligation to allocate 30% of new developments to subsidised housing, as has happened in Catalonia. However, unlike in Catalonia, local councils will have the possibility to demand this condition from builders, but they will have to be compensated. In other words, the municipalities will have to compensate the developers for the lost building, at market price, either monetarily or by increasing the building by the 30% lost or by transferring the land to another location. Nor does this measure seem to be adequate to increase the social housing stock if we take into account the results in Catalonia, where 55.3% of developers and builders have stopped investing, 31.6% have reduced their investment and 3.1% have moved their investment to another territory.
• A surcharge of up to 150% on IBI for empty homes that could be applied by local councils. In this respect, we understand that it could have a limited scope since this type of property is less frequent in areas with problems of demand. This surcharge could only be applied to persons (individuals or legal entities) who have four or more properties, at least one of which is unoccupied, for a period of two years or more, without a justified reason. Furthermore, its implementation seems somewhat complex insofar as municipalities will have to keep a register of empty dwellings. That is to say, they will have to register for each dwelling, informing who owns it, who usually lives in it, if it is displaced for any reason, if there are any building works, if it is for sale, if it is a second residence, etc. ….
• The granting of a cheque for €250 per month for young people between 18 and 35 years of age, with an annual income of around €24,000 for a maximum period of 24 months. The ability to prove that they are in employment is also a requirement for accessing this voucher. The success of this measure will basically depend on how it is passed on to rental prices. In this respect, landlords normally have information on the annual income of tenants and could therefore identify those who are eligible for the benefit. With such information, landlords could raise the rental price.
• A 50% reduction in personal income tax for small landlords who rent out their property. This reduction could reach up to 90% if (i) the property has been refurbished, (ii) it is for people under 35 years of age, (iii) it is under social rent, and/or (iv) if the rental contract is of long duration. We will have to wait to see how this measure is reflected in the final text, but a priori landlords will pay more, as the general reduction of 60% (currently in force) will be reduced to 50%.
• Finally, it is expected that the final text will extend the compulsory extension beyond that currently in force (5 or 7 years depending on whether it is a natural or legal person) in order to reinforce the concept of “tenancy”, as was already the case in the 1964 Urban Leases Act. However, it would be appropriate to add causes for contractual termination in order to balance the interests of the lessor and the lessee.

So far, a brief outline of the essential elements that will make up the new housing law. We will have to wait for the final text for a more exhaustive analysis.