The residential rental market is currently at an all-time high in recent history. In January 2024, rental prices rose 5.1% year-over-year to €11.78 per square meter, the highest level in the last 18 years. This means, for example, that a standard-sized apartment (80^{square meters}) costs, on average, 942 euros per month in Spain.

It is, therefore, a difficult time, given the recent Housing Act has sought to address through measures designed to promote access to affordable housing. Among these measures are precisely the restrictions on rental prices, such as the designation of areas with a tight housing market or the creation of a Residential Rental Price Index.

Today we want to talk to you about the latter to explain what it’s all about. Don’t miss this comprehensive guide!

What is the Residential Rent Price Index?

It is a new state-level reference system designed to set limits on the prices of new residential lease agreements. It is intended as a guideline and uses a system of price ranges based on a series of housing characteristics, such as floor area, condition, year of construction, and the features of common areas (such as whether the building has an elevator, a doorman, a swimming pool, or parking).

It may only be applied to cap prices in areas that have previously been designated as high-demand areas by the autonomous communities. To qualify, these areas must meet one of the following requirements:

• The average cost of a mortgage or rent in the individual’s or household’s budget, plus basic expenses and utilities, must exceed 30% of the average income or average household income in that area.
• The purchase or rental price of the home must have increased by at least 3% over the past 5 years, exceeding the cumulative growth rate of the CPI in the corresponding autonomous community.

How is the Residential Rent Price Index calculated?

To compile this data, information from the 2022 income tax return database was used, which includes more than 2.5 million landlords. Data was also obtained from the Tax Agency, the Land Registry, the National Institute of Statistics, the Bank of Spain, and the Association of Registrars.

In addition, members of some of the institutions and organizations already mentioned—as well as others, such as the General Secretariat for Economic Affairs and the G20 of the Spanish Presidency, the General Council of Economists, and the Spanish Association for Value Analysis (AEV)—have also participated in the project to develop the calculation methodology.

In addition, it is scheduled to be updated annually based on the relevant data for each year.

To whom does this new Residential Rental Price Index apply?

As we have already mentioned, this scale of maximum and minimum prices may only be used to set rental prices in high-demand areas. And even within those areas, it will not affect everyone, as it will apply exclusively to new lease agreements that meet one of the following criteria:

• The property has been rented out over the past 5 years by a small landlord (not a large property owner), and the rent was higher than the benchmark price index. In this case, the rent may remain unchanged.
• The rented dwelling must belong to a large property owner. In high-demand areas, according to the Housing Act, a “large property owner” is defined as a natural person or legal entity (company) that owns more than five urban properties within that area—excluding garages and storage units—or that owns a total floor area of 1,500^{square meters or} more.
• The rental property belongs to a landlord of any kind (whether a large-scale landlord or a small-scale landlord) and has not been rented out in the last 5 years, or has never been rented out.

What is the price range for renting this apartment?

The Residential Rent Price Index establishes two ranges of values: the lower and the upper. Therefore, the rent for housing units that meet the aforementioned criteria will be set based on the specific characteristics of the unit. In fact, the Housing Act allows a landlord to increase the rent by up to 10% if the property has been renovated in recent years, in accordance with the terms set forth in Article 41 of the Personal Income Tax Regulations.

Since when has this Residential Rental Price Index been in effect?

This new measure was published in the Official State Gazette (BOE) last Friday, March 15, and has been in effect since then in those autonomous communities that have designated areas within their territory as high-risk zones.

In which autonomous communities is it already being implemented?

So far, only Catalonia has chosen to use this Residential Rental Price Index to regulate rental prices. Specifically, it has designated 140 of its municipalities as areas with a tight residential housing market; these municipalities have an insufficient supply of affordable housing and therefore meet the requirements set forth by law.

These municipalities are home to 6.2 million people, or 80.6% of the Catalan population. The measure is expected to remain in effect for three years, with the possibility of annual extensions following the same procedure.

And, beyond Catalonia, it should be noted that both the Basque Country and Navarre have different tax systems, since the tool has used tax data from the autonomous communities under the common tax regime and has not taken into account data from the regional tax authorities. Consequently, the government must pay particular attention to these cases, especially that of Navarre, since, along with Asturias, it has been one of the autonomous communities that has expressed interest in applying this Short-Term Rental Price Index.

The autonomous community will also be responsible for oversight

It is important to note that the autonomous communities have jurisdiction over housing. This means that they will be responsible for monitoring and ensuring compliance with the Index within their territory in the areas they have designated as high-demand.

To that end, they may conduct inspections, although there are still doubts about their ability to ensure compliance, because there are still no simple mechanisms available for tenants to check whether the home they intend to rent belongs to a large-scale landlord. If necessary, they can only find out by going to the Property Registry.

What happens if the rental property is in a high-demand area and has a current lease?

If the lease is not entered into or renewed after this Residential Rent Price Index takes effect, the rent may increase by no more than 3 percent, as this is the maximum percentage established by law for its annual adjustment. Thus, the rent may only be reduced through negotiation between the landlord and tenant, in which the Index will serve solely as a reference for determining the actual value of the rented property.

In addition, adjustments to the rent may only be made if the property has been improved, if it has undergone energy-efficiency upgrades, or if it meets durability requirements specified in the lease agreement that exceed those set forth in the Urban Lease Law.

How do I access the Residential Rent Price Index?

You can find this index on the Ministry of Housing and Urban Agenda’s website. Specifically, in its State Reference System for Residential Rent Prices. It covers dwellings located in multi-unit residential buildings that are more than 5 years old and have a floor area of no less than 30^m² and no more than 150^m².

To use it, you’ll need to search for the property using its cadastral reference number, which you can find on the Cadastral Agency’s online portal. After that, you’ll be presented with various details about the property—some already filled in and others requiring you to enter information, such as its condition, the features of its common areas, whether it’s furnished, its energy efficiency rating, etc.

Based on this information, the system can perform a calculation using the methodology applied by the State System of Residential Rent Price Indices. As a result, you’ll receive a range of monthly rental prices in euros for reference purposes, as well as the option to download a PDF report containing all the basic details of the property you’re searching for.

How can we identify the current areas of tension?

These areas designated as having a tight housing market can be found on the Ministry of Housing and Urban Agenda’s dedicated webpage.

What will be the consequences of implementing this new index?

Various stakeholders in the real estate sector have not been very optimistic about the implementation of this Residential Rental Price Index. Among the main issues are:

• Its limited usefulness, because it mainly affects new contracts and large holders. In other words, a small percentage of the market.
• It does not serve to stimulate supply, but rather the opposite: it will likely contribute to a further contraction of the market and ultimately push prices upward.
• That this is not a measure intended to lower prices, but simply to keep them in check. Therefore, it can only help slow the increases.
• The report is based on data from 2022, so it does not reflect the current state of the real estate market. In fact, it will not be updated with information from 2023 until the last quarter of 2024.
• The confusion that can arise because the prices in this index differ significantly from those shown on real estate websites.
• The lack of procedures to carry out inspections and penalize violations of the measure.
• The subjective nature of the index with regard to the assessment of the apartment’s characteristics, since the criteria used to determine whether it is furnished or in good condition may vary from person to person.

What do you think of this Residential Rental Price Index? Do you think it will help lower prices and ease the strain on the rental market?

We recommend:

• Factors That Will Influence Housing Prices in 2024
• “Built to rent”: What is it, and what are its advantages?