The new draft Housing Law and what it means for renting

The new draft Housing Law and what it means for renting - Costaluz Lawyers

The Spanish Cabinet has approved the draft for the coalition government’s Ley de Vivienda Housing Law – the first State regulation specifically about housing.

The new regulations include measures so that the Autonomous Communities and municipalities can control the rental market, find a use for empty properties, increase the public housing stock and regulate evictions for vulnerable people.

It is hoped that the draft, which is being emergency fast tracked, will be put in front of the Congress of Deputies, Spain’s lower house, before the end of the year and put into action in early 2022.

But, what does the draft law include?

Declaring ‘stressed market areas’

Under this new law, the local authorities who will ultimately be responsible for housing will be allowed to declare an area a “stressed residential market” for a period of three years, extendable annually if circumstances persist. This declaration will involve specific action plans to correct any imbalances in the market.

For a municipality (or part of it) to be declared a stressed market area, the cost of paying for housing (either a mortgage or rent plus utilities expenses) has to exceed 30% of the average net income of households in that area.

The price of rent (or purchase) in the area will also have had to experience a rise of at least five per cent more than the percentage of growth of the region’s consumer price index (CPI) in the previous five years.

Freezing or limiting rental prices

In residential market areas declared to be under stress, existing tenants will be eligible for an extension of their current contract on an annual basis for a maximum period of three years.

In the case of new rental contracts for properties already previously on the market, the rental price can be limited to that of the previous contract, plus the corresponding CPI increase.

In addition, there will be tax incentives for lowering rental prices and additional measures could be applied to owners of more than ten properties (not including garages and storage units).

Tax incentives for landlords

At present in new contracts, there is a general tax break of 50% for landlords. However, under the new law this could be increased to up to 90% if signed in a stressed market area. This is to encourage the renting of primary residences at affordable prices.

Some of the tax breaks are:

  • A deduction of 90% when a new contract is signed with a reduction of at least 5% of the rent of the previous contract.
  • A deduction of 70% for new leases for young people aged between 18 and 35 years of age.
  • A deduction of 70% for housing leased to a public administration or housing programme that subsidises rent.
  • A deduction of 60% if refurbishment work has been carried out in the previous two years.

Other measures

The overall aim of this new draft Housing Law is to create a more sustainable and affordable housing stock. Other measures to this end include:

  • Allowing town and city halls to establish a surcharge of up to 150% (currently 50%) on the IBI council tax for homes that have remained unoccupied for more than two years without just cause.
  • The stock of public social housing will be subject to permanent protection and cannot be sold off.
  • Households in a vulnerable situation, facing eviction, will have quicker access to social services to avoid homelessness. While solutions are sought, evictions must be suspended for two months (currently one) for individuals or four months (currently three) for legal entities. This is in addition to the existing protections against evictions until 28 February 2022, as well as the prohibition of cutting off utilities.
  • Thirty per cent of new constructions will be designated for VPOs (affordable homes).

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