- Cost for apartments has jumped 50% in the past five years
- Most smaller cities have yet to recover from property crash
After seeing housing costs jump by more than 50% in the past five years, officials in Barcelona are moving to introduce Spain’s most aggressive rent controls.
Under a decree published last week, landlords will have to negotiate leases based on benchmark prices set for each property in those neighborhoods tagged as most desirable. That regulation follows a national law implemented in March that caps annual rent hikes at the rate of inflation, currently 1.5%.
Spain’s hottest property markets — Madrid, Barcelona, the Basque region, and Valencia — have attracted money from foreign investors such as Blackstone Group and Cerberus Capital Management in recent years just as thousands of landlords converted year-around flats to tourist apartments. Progressive parties that have taken control of city halls blame the foreigners for much of the rent increases.
One note of caution: Pro-renter Barcelona Mayor Ada Colau lost in Sunday’s election. While the winner from the Esquerra Republicana party also supports rent controls, it won’t be known until around June 15 whether the new mayor has enough allies in smaller parties to carry them out.
The rules were written by the government of Catalonia and allow similar controls in the region’s smaller towns. But few may embrace the measures equally, as the increases have been largely confined to the biggest cities, said Mark Stucklin, a real estate analyst with Spanish Property Insight in Barcelona.
“I expect this to happen here first,” Stucklin said. “Maybe we’ll see it come to some areas of Tarragona and Girona, but few other towns.”
Most rural areas and smaller cities have yet to fully recover from the property crash of 2008-2013. Nationwide, rents rose 2.3% over the last five years, versus inflation of 3.4% in the period, the National Statistics Institute reports.
“Only the two biggest cities, Madrid and Barcelona, have recovered to pre-crisis levels,” said Pablo Fernandez de Mosteyrin, a real estate analyst with Renta 4 Banco in Madrid. “That’s where the price pressure is.”
Catalonia’s new rules make exceptions for new construction and higher-end apartments — those with amenities such as swimming pools and gardens. And they don’t give tenants the right to renegotiate contracts that exceed the new caps.
Some economists and builders say the controls will do little to protect the middle class, as they threaten to drive more Madrid and Barcelona flats into the short-term market for tourists. The combined listings of Airbnb and HomeAway/Vrbo in the Mediterranean city have grown over the years to about 20,000 last month, according to researcher Airdna in Denver.
Beatriz Toribio, research director at property website Fotocasa, says it’s not that simple. While growing numbers of landlords are clearly letting their apartments to tourists, banks have also been stingier since the crisis, driving up rents as potential buyers end up in the rental market.
“Tourists and foreign investors get blamed, but more people are also renting rather than buying,” Toribio says. “Since the recovery began, banks haven’t been giving such easy terms on home loans.”