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  • Writer's pictureInvestment Synergy Team

Bank Of Spain Warns Government That Housing Policy – Rent Cap Etc. – Is Having Opposite Effect To That Intended

Posted by: The Corner

The Bank of Spain reviews the main real estate measures promoted by the Government, both in the purchase and rental segments, and concludes that they could end up resulting in an increasingly smaller market with higher prices.

The BdE analyses rental price controls, a measure introduced temporarily by the decree on anti-crisis measures after the Russian invasion of Ukraine but made permanent by the housing law passed in April last year. The Bank of Spain recognises that the government’s intention is to “reduce the problems of overburdening vulnerable households”, but believes that a “sustained application over time” of this rule can “generate new problems of accessibility to housing”, i.e. the opposite of what is intended.

Real estate portals, in fact, warn of a clear reduction in the supply of rental flats after the approval of the law, with an increase in the supply of flats for tourist rental, unaffected by the price limit.

The Bank of Spain explains a series of negative consequences that have resulted from the implementation of similar measures in other parts of the world, such as “a contraction in the supply of rental housing in regulated areas, the displacement of the use of housing to other alternative markets (for example, seasonal rental or tourist housing) and a decline in the quality of housing due to lower maintenance”.

As for the measures with which the Executive seeks to protect tenants, such as extending the duration of rental contracts or tightening the conditions for evicting vulnerable families, the Bank of Spain points out that “the risk of non-payment for landlords is increased, which could result in an increase in the price of rent or a reduction in the supply of rent available to these vulnerable households”. This is another criticism of these measures, which on paper seek to defend the most vulnerable but in the free housing market could lead to just the opposite. It seems logical to think that the landlord, faced with the situation of renting his home to two families, will always choose the one with the higher income in order to avoid as much as possible the risk of non-payment. In other words, this is another step in the inaccessibility of housing for the most vulnerable tenants.

In contrast, the Bank of Spain believes that the solution lies in alleviating the housing shortage, which it estimates at 600,000 homes by 2025 (despite the fact that almost four million are empty in Spain) and which is particularly serious in Madrid, Barcelona, Valencia, Malaga and Alicante, and in “reinforcing legal certainty and regulatory certainty”. It believes that “periodic changes to regulations that affect the main conditions of current rental contracts or successive changes in urban planning requirements for building housing should be avoided”.

Investment Synergy - These issues intrinsically affect the local communities - tourists and ex-pats in the main are unaffected, except for increases in property prices (rental and purchase) - however.... should these potential increases start to impact with fewer visitors in whatever guise... will affect the local communities ........ business and personal alike !

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