Our property expert – Mathew Wood of Hola Properties headquartered in Lanjarón – explains why Spain’s long-term rental market is going into decline and the consequences for landlords and tenants.
SPAIN’S RENTAL market is under significant strain, thanks to recent legislative changes that fundamentally alter the landscape for landlords and tenants alike, while falling heavily in favour of tenants.
The intention behind these laws was to protect tenants and make housing more affordable. However, the actual result is almost the opposite: a growing exodus of landlords from the long-term rental market. And why is this? The main reasons are the imbalance of rights and the cap on rental price increases. For many property owners, the returns from their rental income no longer justify the costs of holding and maintaining properties. In fact, landlords can easily lose money, instead of making the desired profit.
The legislation rather unfortunately limits rental increases to percentages well below the rate of inflation, resulting in landlords facing rising costs without being allowed to adjust rents accordingly. In turn, the incentive for maintaining legally-rented properties has diminished, prompting an increase in illegal rentals. While landlords are understandably trying to avoid restrictive laws, these ‘off-the-books’ arrangements introduce an element of risk for both parties. Landlords and tenants engage in transactions without formal contracts, and deposits aren’t registered in the legal way, leaving both sides vulnerable to disputes. If something does go wrong, which can so easily happen, it will be difficult to gain legal recourse – because it’s all been done with black money and no paperwork.
The rise in illegal rentals is a direct response to the legislative environment, creating a parallel market where the rules are disregarded in favour of practicality and financial viability. However, this shadow market undermines the very foundations of tenant protection and property management, leading to a precarious situation – with no solution in sight.
‘Okupa’ fears lead landlords to abandon ship
One real danger for landlords is the risk of having ‘okupas’ (squatters) who don’t pay rent and are difficult to extract from their property, requiring a long and cumbersome legal process. Spain’s stringent tenant protection laws prioritise the security of tenure, and restrict rent increases. These laws are widely viewed as favouring tenants at the expense of landlords. As well as making it difficult for property owners to adjust rents to meet costs, they also make it hard to reclaim properties, when necessary. if somebody has ‘occupied’ it, is not paying or is even damaging the proprety. The ongoing concern about ‘okupas’ is a significant deterrent for landlords, prompting many to exit the long-term rental market.
In general, the legal protections for tenants have created an unbalanced market, where landlords bear higher risks and costs. This has pushed many landlords to sell their properties or switch to short-term rental agreements, where the regulations are less stringent and financial returns can be better. The situation is now constricting the long-term rental housing supply.
With further revisions to legislation being suggested annually, the current problems with the supply of long-term rental accommodation are likely to stick around. This situation is politically-driven, as sound bites about helping tenants and making renting “more affordable” sound good and are a vote winner. In practice, the legislation has damaged the market. This was predicted by property market professionals, but their concerns could not put the brakes on the problem,
Declining rental stock in Granada
The regulatory framework has led to a significant reduction in rental stock. In Granada province, we’ve seen a 30% decrease in available rentals in the last quarter alone (the first three months of 2024). The scarcity of legal rental options is pushing prices up for remaining stocks, paradoxically making housing less affordable for many long-term renters. The decline in stock affects potential tenants and the overall health of the housing market, with long-term repercussions for urban development and housing policy.
Landlords, facing the dual pressures of legislative restrictions and financial impracticality, are increasingly deciding to sell their properties or convert them into short-term holiday rentals. Despite regulatory efforts (to be more stringent), this model frequently offers a more favourable return on investment. This shift further depletes the long-term rental market, worsening the housing shortage and destabilising the rental sector.
Despite the legislative changes supposedly existing to protect tenants and control the rental market, they have damaged the stability of Spain’s housing ecosystem. The growth of illegal rentals and the reduction in rental stock show a market in distress, seeking equilibrium between protecting tenant rights and ensuring that landlords can feasibly operate in this market.
As Spain navigates this challenging landscape, the need for balanced reforms that consider the interests of both landlords and tenants are critical.
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