Spanish Housing Law: running in circles and coming back as we are

As the echoes of Coldplay's spectacular concerts in Barcelona fade away, the recent regional and local elections held on 28 May have sparked discussions about the enforcement of the newly approved Spanish housing law (Act 12/2023 of 24 May on the right to housing) (Ley 12/2023, de 24 de mayo por el derecho a la Vivienda) (the Housing Law). Adding to the complexity, a general election is scheduled for 23 July, further impacting the trajectory of the Housing Law. It seems we are living the Coldplay song: running in circles, perhaps not chasing our tails, but probably coming back as we are. In this blog, we explore the current political landscape, the potential implications for the housing law, and the measures that are currently in force.

The result of the regional and local elections

Although the 28 May elections left a landscape dominated by the conservative Popular Party, negotiations surrounding the makeup of regional and municipal governments are still ongoing, but no major changes are expected.

As discussed in our previous blog, the implementation of most measures outlined in the Housing Law depends on further development and specification through regional and local regulations. In other words, while the Housing Act provides the tools, it is up to the regions and municipalities to decide whether to utilise them effectively. 

One key measure affected by this regional discretion is rent control in ‘stressed residential market’ areas, referred to as the Stressed Areas. The application of rent control measures hinges on the definition of these areas by the regions, according to criteria set out in the Housing Law. Only when the Stressed Areas are defined can the rent control measures be applied, including:

• Caps on new rental agreements in the Stressed Areas for both, individual and ‘large holders.’ Large holders are those individuals or legal entities that own more than 10 residential properties (the threshold can be reduced by the regions to five, and parking lots and storage rooms are not considered) or a built-up area of more than 1,500 sqm.
• Lease extensions, at the lessee’s request, after the minimum term for the landlord and up to three additional years.
• Personal Income Tax incentives if certain rent control measures are applied by the lessor.

Similarly, in terms of social housing, the obligation for affected municipalities to allocate mandatory planning capacity (apovechamiento urbanísitico) to social or public housing is contingent upon the prior definition of Stressed Areas. 

Additionally, the enforcement of measures related to empty houses, previously dependent on regional definitions, now lies with the municipalities – and is potentially affected by the political landscape. Prior to the implementation of the Housing Law, the application of surcharges in Real Estate Tax (IBI) was conditional on the regional definition of ‘empty houses’. The definition of empty houses is now included in the Housing Law, so enforceability is no longer dependent on the regions, however, municipalities will still have a role to play. The surcharge in Real Estate Tax, previously set at up to 50%, can now be increased up to 150% under the Housing Law. 

General elections and future outlook

Further complicating the implementation of core measures in the Housing Law, the Spanish Prime Minister unexpectedly called for general elections on 29 May, just one day after the regional and local elections. The Popular Party, the main opposition, has expressed its intent to abolish the Housing Law if they assume power. Thus, if there is an electoral overturn at the national level, the possibility of the Housing Act being entirely revoked in the short to medium term cannot be dismissed.

Measures currently in force

Nevertheless, amidst these uncertainties, certain measures from the Housing Law are already in effect. Rent review caps, initially implemented in 2022 due to rising inflation, have been extended to 2023 (2%) and 2024 (3%). Furthermore, a new index that will serve as a cap from 1 January 2025 needs to be defined by 31 December 2024.

Other measures currently in force include new minimum percentages of reserve land for social housing, percentage varies from 30% to 40% in new developments and from 10% to 20% in refurbishments. At least 50% of these reserves must be dedicated to social housing for lease. The dedication of these houses as social housing will be permanent. Additionally, mandatory extensions favouring vulnerable lessees and protective measures for households at risk of vulnerability in repossession proceedings are also in effect.

The Spanish housing law faces significant challenges due to the regional and municipal discretion in its implementation, coupled with the potential political changes brought about by upcoming general elections. While certain measures are currently in force, the long-term fate of the Housing Law remains uncertain. As we closely monitor these developments, we encourage you to reach out to the Freshfields team for further analysis and insights on these matters.