Spain caps rental increases at 3% with a new law

The legislation is the first of its kind in the country with the aim of making housing affordable

Yesterday, 27 April, the Spanish parliament passed a housing law, which has been described as a “significant milestone” by Prime Minister Pedro Sanchez. Its main point is that it sets a limit on rental price increases at 3% per year, regardless of inflation or location. The overall aim of the new legislation is to make housing accessible and predictable for large swaths of the population that cannot afford to buy a home.

What are the implications?

Previously, Spanish landlords could increase rents according to inflation. However, galloping prices since last year have made the cost of living a burden threatening to put many people out on the street. A provisional 2% cap was placed by authorities to calm social fears and unrest, and that is in force for the current year. The new law, which sets the ceiling at 3%, however, makes the measure more permanent.

It also targets companies or individuals who rent out more than five properties, potentially requiring them to lower rents in certain areas where housing prices have risen too high in recent years. Local governments will determine those areas.

Such areas are named “tense housing markets” and to declare one as such, the law proscribes that average rents or mortgages are over 30% of the average household income or where they have gone up by at least three percentage points over the Consumer Price Index in the previous five years.

Tenants will also no longer have to pay real estate agencies the fees and expenses associated with signing new rental contracts, but rather landlords will.

One area not affected by the legislation, however, are the short-term rentals usually available to tourists, but also an increasing factor of contention and disruption on the housing market, as well.

The bill still must pass through Spain's senate, but it is expected to pass and take effect before regional elections in May.