Spain’s government just passed sweeping rent control as part of its first-ever national “right to housing” law. The Ley por el Derecho a Vivienda (“Right to Housing Law”) will allow regional governments to impose rent caps for apartments owned by landlords (with 10 properties or more) in areas deemed to be “stressed markets.”
It also includes tax penalties for owners who leave multiple units unrented for long periods, and includes provisions to reserve 30% of units in new housing construction for low-income public housing. The measure, first approved in draft form last October, passed in the legislature on Feb. 1.
It’s part of a continued effort by Spain’s left-wing government to address an urgent housing affordability crisis, in which renters have faced price hikes of 50% within a span of five years.
With this new law, Spain’s government is attempting to create long-term outcomes—that every citizen enjoys a safe, dignified home—but it’s using policies that have short-term benefits. For example, the rent caps included in the new law are likely to benefit current apartment renters but are unlikely to help, and may even hurt, growth in the supply of affordable housing overall.
In Spain, as well as other countries across Europe, rent regulation policies have historically been a favored tool of government to combat rent inflation and unaffordable housing. But since the mid-20th century, economists have largely agreed that rent control doesn’t achieve its intended goal of making housing more affordable and abundant for a city overall.
The late Swedish economist Assar Lindbeck has been quoted as saying that rent control is the “most efficient technique presently known to destroy a city—except for bombing.” This is because price ceilings distort supply and demand in housing markets.
When some rents are kept artificially low, economic theory suggests existing property owners may sell to occupants to get out of the rental market altogether, and fewer developers will be incentivized to build more units, keeping the supply of housing low and driving up prices on housing that isn’t already regulated. Lucky tenants already in the rent-controlled units may lock in lower prices, but new renters (and future generations) may be shut out of the market or pay higher rents.
Spain’s housing affordability crisis is driven by a low supply of rental housing that hasn’t kept up with demand.The Spanish government has historically incentivized homeownership, and it’s been successful in that; today, roughly 75% of Spanish households own their homes. Consequently, Spain has one of the smallest rental markets in Western Europe. But demand for rental housing is rising, and the supply hasn’t kept up.
In Barcelona and Madrid, locals have had to compete with tourists to rent flats, as an increasing number of apartments have been converted to short-term rentals for platforms like Airbnb. Meanwhile, construction of new rentals has slowed since a housing bubble burst in 2008. All of this adds up to a tight rental market that some young people can’t break into; more than half of people between 25 and 29 still live at home with their parents.
When the law takes effect, the rent caps will help stabilize renters that are already in units owned by large landlords but won’t necessarily help would-be renters who can’t break into the market. Still, together with other measures included in the bill, it could address more fundamental issues in the housing market. The provisions incentivizing owners to put empty units on the market and requiring a percentage of new construction to be reserved for public housing are both intended to increase the supply of available housing overall.
If this law is successful in Spain, it could serve as a model to the number of US cities that are increasingly turning to rent control as a potential solution to rising housing costs.In elections in 2021, voters in Minneapolis, Boston, and elsewhere supported policies or politicians that back new rent control laws.
