Control of the real estate market has taken an unexpected turn this year, with three autonomous communities – Catalonia, the Basque Country and Navarra – implementing the declaration in order to cap the price of rentals. The decision affects more than eight million inhabitants in the three regions, although the population distribution is unequal: while residents who live in the 271 of the 299 municipalities that have adopted housing price controls, the two Foral communities have just under 900,000 inhabitants between them. The regulations specifically impact 90% of the Catalan population (about 7.1 million inhabitants), 20% in the Basque Country (437,556 people) and 68% in Navarra (459,088). The intervention, promoted in all cases by councils governed by the left, seeks to mitigate the growing pressure of the population towards the rulers to remedy the disproportionate increase in housing prices and the lack of supply. However, the effects of the measure remain in doubt, and while some experts celebrate the progress of these policies, others warn about the risks of excessive intervention.
The three cases include densely populated and highly demanded locations. Catalonia, and an economy heavily dependent on its capital, Barcelona, has traditionally been one of the main sources of tension in the rental market. Of the 947 municipalities it has, 271 have been declared stressed areas – in March of this year the price was limited in 140 locations and in October another 131 were added. In all cases, the criteria that the Generalitat has followed is that families dedicate more than 30% of their income to paying the rent or mortgage, or that the value of these houses has experienced a cumulative increase of at least three points above the CPI.
The Basque municipality in this autonomy pays the consequences of being located next to the metropolitan area of San Sebastián, as do Zumaia, Lasarte and Irun, four other towns that have requested it. A similar situation occurs in the areas surrounding Bilbao, hence Baracaldo and Galdacano join the list. Although the community has 252 municipalities, almost 20% of the population lives in the seven areas where the rent will be capped. In Navarra the dynamic is identical; It has 273 municipalities, but almost 70% of its inhabitants are concentrated in them. In some of these territories, rents have increased by more than 100% in five years.
In all cases, the initiative has been launched by left-wing parties. In the Basque Country, despite the fact that the lendakari is from the PNV, EH Bildu and the socialists cover almost all of the tense areas. For its part, the Generalitat is chaired by the socialist Salvador Illa and . The common goal is to alleviate the increasing pressure of rental costs. However, the viability and effects of this policy generate extensive debate.
Future effects
On the one hand, which became the first community to apply the measure, offers an encouraging perspective, explains Jaime Palomera, anthropologist and housing expert at the Barcelona Urban Research Institute. Rental prices fell between 3% and 5% in stressed areas between January and June of this year, coinciding with the entry into force of rent regulation, which was in March. The decline, although moderate, is significant in a context in which the market continues to set historical records. The analyst insists that the effects are only perceived over time, “to the extent that people who live in rent effectively see that they are more protected, because they can no longer suddenly raise their rent.” and disproportionate.” And he insists that “scientific evidence from the United States and Europe shows that forced moves and residential insecurity are reduced.”
However, the position of Santiago Carbó, professor of Economics at the University of Valencia and director of financial studies at Funcas, calls into question the long-term effectiveness of these interventions. Although he recognizes that the price reduction in the Generalitat could be considered a short-term success, he warns that the most negative consequences of the regulation remain to be seen. Their biggest concern is that, in a context of chronic housing shortage, landlords will withdraw from the rental market. Instead of adjusting to the established limits, many landlords may choose not to make their homes available to anyone looking for an apartment, which would only increase the lack of supply. “Signed contracts may experience a reduction or a smaller increase in rents, which improves the situation in those cases. However, the problem is that everything that is not signed, or what is left out of the market, generates more tension. This is what happens in Catalonia and other places, where regulations can have undesirable effects on availability,” he says.
The Generalitat data also reflects this other part of the story. After the entry into force of the regulation, in the municipalities declared as a stressed residential market. The reduction corresponds to the months of April, May and June, the first complete period with the current regulation. The contraction of the market could end up affecting the most vulnerable families, which are in principle those who are sought to be protected. This is what José García Montalvo, a professor at the Pompeu Fabra University, believes. He explains that the objective of a policy “cannot be to lower the price of rent, but rather to allow access to housing for people who have few resources.”
Gianluca Battista
In his opinion, the Catalan case of 2020 shows that this type of regulation causes a slowdown in the market, while prices barely register changes. In that year, but rents barely moderated by 0.1% in Catalonia and 1.4% in Barcelona (if we analyze only the fourth quarter, which is when the regulation comes into force, the drop was 3. 4% and 5.7%, respectively). “The only thing this system generates is long lines in which those with fewer possibilities of competing with the market, such as people with low incomes or single-parent families, are at the end of the list, while digital nomads or people with higher incomes resources are those who access housing, perpetuating inequality,” says the analyst.
The fact is that the shortage in the main cities leads many families to look for a home in the surrounding municipalities, increasingly expanding the displacement area. Added to this is what Palomera describes as a diversion of housing to the second home market and tourism. “They are quite transversal problems, which occur outside of price controls because they have more to do with the real estate cycle and the type of investment that is being promoted,” he details.
Despite the differences in valuations, the three experts agree on the structural nature of the Spanish real estate market. Palomera highlights that, in addition to regulating prices, it is essential to promote policies that increase the supply of affordable homes. In this sense, the intervention of the public sector, especially through the creation of new apartments and the rehabilitation of existing ones, is essential to improve the situation. If this problem is not addressed, any price regulation risks falling short. However, in the short term it is possible that it will have an impact on regional and municipal elections. Montalvo is critical in this regard and believes that “the carrot of price limitations for the population is being used without city councils incentivizing measures that increase supply.”
