By Will and ChatGPT
According to a report from Brussels, putting limits on rent has the effect of obstructing the supply, although the President had promised not to do so. The President of the Government, Pedro Sánchez, has launched a new Housing law, “La Ley de la Vivienda“, that contradicts what he committed to in the Recovery Plan to receive European funds.
As per the decision of the European Council on July 7, 2021 – see attached reproduction – the promise was to enact a pioneering new Housing law that “will prevent measures that may hinder the medium-term supply of housing.” The commitment in the financing agreement of that year went even further, stating that “the law should stimulate an increase in the supply of social and affordable housing.” At that time, there was no agreement with Podemos, and setting any rent caps was considered contradictory to the goal of not dissuading property owners from offering apartments.
However, this reform within the Component 2 of the Plan does indeed obstruct the supply, according to numerous experts since the announcement last Friday, including Enrique Illán, president of the Association of Real Estate with Rental Patrimony, in statements to this newspaper. An Idealista study already places rental supply “at a minimum of 2016” after a further 5% drop in the first quarter, with current caps among other factors.
The mobilization of 50,000 Sareb homes is a theoretical increase in supply, but it is not part of the Housing law, and it is not enough to counter its restrictive effects on the increase of the stock.
Being contrary to what was promised, will it pass Brussels’ test? So far, the European Commissioner for Economic Affairs, Paolo Gentiloni, has shown high flexibility and has given the government hope that he will endorse the controversial pension reform, for example.
To endorse the Housing law, Gentiloni has against him documents from his own department, such as the one from last autumn called “Housing Market. Evolution in the Eurozone,” which warns against the short-termism of setting limits on rent increases. “Maximum limits in the private rental market can have short-term appeal in terms of restricting increases at a time of cost pressure. However, in the medium term, excessive regulation of the rental market can create dual markets and reduce supply (…). Strict regulation can lead to imbalances between supply and demand, which can cause speculative real estate bubbles and excessive household debt accumulation by pushing them to acquire a home in property,” it describes.
It is joined by studies from the Bank of Spain, which are contrary to setting limits on rent increases due to their effect against supply, and from BBVA Research or Funcas. Very illustrative of the short-termism is the so-called “Housing and Future” of the Pompeu Fabra University on the pioneering Catalan experiment of 2020 to control prices. “During the year and a half of the law’s validity, a reduction in prices of around 5% is recorded – decreasing throughout the period – while falls in supply are around 15%,” it states. Including the pandemic period makes it difficult to measure the true effect of the reduction, but a study by Esade that revisits this report claims that where prices fell was in the most expensive homes.
On the other hand, although the Housing law is launched during an election campaign, it is an attempt to fulfill a commitment to receive the fourth payment of European funds next autumn because it is part of the package for this period, along with, for example, the pension reform. In that decision of the European Council, it was assumed that the Housing law should be “finished no later than September 30, 2022.”