On May 26, the new Housing Law went into effect in Spain, after having been previously approved by the Council of Ministers (February 1, 2022), by the Congress of Deputies (April 27, 2023) and by the Senate (May 17, 2023), and published on May 25 in the Official State Gazette (BOE).

As indicated by the Ministry of Transportation, Mobility, and Urban Agenda, this regulation was created with a twofold objective: to uphold the right to decent housing enshrined in the Constitution and to assist (through various measures) those groups that face the greatest difficulties in accessing it.

However, this law is not without controversy; and given its significance for the housing market, we at CULMIA believe it’s important to clarify a few things. So if you want to learn all about it, don’t hesitate… keep reading!

What are the five key points of this new Housing Act?

Also known as Law 12/2023 of May 24 on the Right to Housing, it is the result of the Housing Rehabilitation and Urban Regeneration Plan , which is, in turn, part of the Rehabilitation, Transformation, and Resilience Plan. This plan has been promoted by the Spanish government to channel European funds to repair the damage caused by COVID-19 and facilitate the recovery of economic growth and employment.

These new regulations focus on five areas of work:

Promoting Public Housing

It includes provisions such as the indefinite designation of public housing to ensure a minimum term of 30 years, the creation and maintenance of an inventory of the public housing stock, and the regulation of these public housing stocks to prevent their sale to investment funds.

Restrictions on Rent Prices

Among other measures, the new Housing Act of 2023 establishes a maximum annual rent increase of 3% for leases in effect during 2023, the designation of areas with a tight housing market for a (renewable) three-year period to implement rent reduction measures, and the creation of a new benchmark index starting in 2025 for the annual adjustment of lease agreements ( replacing the CPI).

Measures to Strengthen the Balance in Landlord-Tenant Relationships

To this end, an extraordinary one-year extension may be granted on lease agreements in cases of documented social and economic vulnerability. Furthermore, the costs associated with property management and the execution of the lease agreement will be borne by the landlord. This includes, for example, the real estate agency’s commission and fees.

Protection Against Evictions

Measures are being put in place to ensure effective communication between the judiciary and social services in order to provide prompt assistance to people in vulnerable situations. Housing solutions are also being offered to those affected, and the deadlines for suspending evictions are being extended. Furthermore, if the plaintiff is a“large-scale landlord”and the eviction lawsuit affects vulnerable individuals, the plaintiff must demonstrate that a conciliation or mediation procedure has been followed.

New Definition of “Large Landowner” and “Vacant Housing”

A “large property owner” is defined as a person who owns five or more urban residential properties located in the same area that has been designated as a high-demand area, when so requested by the autonomous community.

In addition, the term“vacant dwelling”is defined so that municipalities can apply the surcharge on Property Tax (IBI) surcharge to properties that have been vacant for more than 2 years and whose owner has at least 4 properties in this situation.

And, finally, a modulation of the property tax surcharge (previously set at 50% of the net property tax liability) is established, which may reach 150%.

How does the new Housing Act affect you if you’re planning to sell or buy a home?

After our brief overview of the five pillars of the new Housing Law, it is easy to conclude that it will primarily affect the rental market. However, the implementation of these measures will also have an indirect effect on the home-buying market, at least according to the analysis conducted by some real estate experts.

Furthermore, the Rental Negotiation Agency (ANA) has already noted that a large number of landlords, “whose rental properties are nearing the end of their lease terms,” are informing their tenants of their “intention to sell their properties upon the expiration of the lease.” They attribute this trend to “the uncertainty created by the government’s new rental measures and its intervention in the market.”

Specifically, according to ANA, the Housing Act will“disrupt the balance and unity of the rental market.” This is mainly due to measures such as these, which harm landlords:

• A freeze on—or even a decrease in—rental prices in areas designated as high-demand.
• The penalty involving a surcharge on the IBI for “large property owners” who own vacant homes.

Increase in the supply of real estate

Homeowners affected by these measures will likely choose to sell their homes. If this happens, the supply of homes will increase, and as a result, mortgage costs will decrease.

Women developers will also be affected

However, this downward trend in prices could be offset by other effects caused by the new Housing Law, which will directly impact developers. The first of these stems from the obligation developers will have to compensate buyers if there are any delays in the delivery dates of their homes. This could result in price increases depending on the percentage of the penalty.

And second, due to the requirement that 30% of the homes built be designated as publicly subsidized housing (VPO); and that, in addition, 15% of these must be set aside for social rental housing. The government will seek to offset this measure by granting permits to build 30% more housing or to use other zoned land.

Despite this, all signs point to these companies’ profits being lower than they were before the law was enacted, which could lead them to take on fewer new construction projects and, consequently, reduce their supply.

What about the buyers?

In addition to the possible and unpredictable fluctuations in housing market prices, those looking to purchase a home will benefit in one respect.

Specifically, the law stipulates the obligation that the buyer receive certain information before the transaction is finalized and before any down payment is made, such as: identification of the seller or landlord and, if applicable, the broker; the financial terms of the transaction, essential characteristics of the dwelling and the building (such as the certificate of occupancy, proof of usable floor area, age of the building, energy performance certificate, etc.), legal information regarding the property, accessibility conditions for the dwelling, and its occupancy or availability status.

What will happen from now on with this new Housing Act?

In any case, even though this is a recently enacted housing law, its short-term future is in doubt. The main reason is that responsibility for housing matters in Spain lies with the autonomous communities. Therefore, it is up to each regional government to decide whether to implement the law in its entirety or only certain provisions.

Therefore, if you’re planning to make a move in the rental or real estate markets in the near future, it’s essential to familiarize yourself with the laws of the area where the property is located.

This is especially important in the wake of the recent regional elections, because their results could make it easier for the PP to govern in up to 11 autonomous communities (in some cases, with the support of VOX). The party has already announced that it will not enforce this Housing Law in the autonomous communities and municipalities where it governs; it has even introduced a bill in Congress to repeal it.

Thus, the Housing Act also hinges on the results of the general election on July 23, since, depending on which party wins and which government is formed, it could even end up being permanently repealed.

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