The pact between the Government partners to bring to Congress what will be the future housing law configures a new framework for the rental market in Spain. Although the draft of the text has not yet been made public, it is clear that Spain will join the list of European countries that regulate rents and that it will do so differently depending on whether the homeowner is a company with more than 10 real estate or an individual. It will also differentiate between the areas called stressed and the rest. And progress will be made on the path of fiscal punishment for those who have unoccupied flats. These are the keys to understanding the new regulation:
What is a stressed area?
The declaration of stressed area must be requested by the autonomous communities from the Government and is based on the consideration that it is an area where rental prices have grown in recent years above what is considered reasonable. A specific geographic unit is not established (in theory it could be a neighborhood, a district, a municipality or even an entire autonomous community) but it does oblige two requirements to be met. The first is that the average rental prices in the area have grown in the last five years more than five points per holm oak than the CPI has done. And the second is that this average amount represents more than 30% of the average income per household in the area (that is, families have to spend more than 30% of their salary to pay the house).
What will happen to rents in those areas?
It will depend on who owns the home. The standard differentiates two situations: private landlords and companies that have more than 10 homes (the so-called “large owners”). For the former, the main means of regulation are tax incentives, while for the latter, price caps will be established. In all cases, yes, while an area is stressed, the tenant can demand a forced extension of the contract. This means that, even if your rent runs out, you have the right to extend it under the same conditions by applying the annual increase in the CPI.
How will the rent limits be applied?
In the event that the apartment is rented to a company considered to be a large owner, the price of the monthly rent will be determined by the maximum set by the rental price index. This statistic is prepared by the Ministry of Transport, Mobility and Urban Agenda and is based on data from the Treasury. Therefore, it has the disadvantage that it is a bit old (currently it still does not echo the fall in rents that caused the pandemic). It is not clear whether it will also allow the use of any other index, such as the one developed by some autonomous communities based on surety deposits.
What if the landlord is a private individual?
In that case, which is the most likely because smallholders largely dominate the Spanish rental market, the price will continue to be the one freely agreed by the parties in the contract. But landlords are going to find tax incentives not to raise prices. Currently the rent is discounted with 60%, which means that the income tax return is not taxed for six out of every 10 euros that are received per lease. The new law will lower that percentage to 50%, but will raise it to 90% if, in a stressed area, the landlord agrees to lower the price of the previous contract by at least 5%. Conversely, if the price goes up on a new contract, your bonus will drop below 50% and you could even lose it completely.
Are there other tax advantages for individuals?
Outside of stressed areas, the general 50% bonus may also be raised under certain circumstances. If a house that has just been rehabilitated is rented, that percentage will rise to 60%. If the house is put up for social rent or is transferred to a public entity or a non-profit association, it will be 70%. That same percentage will also apply to those who rent the property to young people between 18 and 35 years old.
How will empty housing be penalized?
Another novelty of the new rule is that it will strengthen the way for municipalities to tax empty houses through the real estate tax (IBI). This possibility has been contemplated for more than a decade, but it had application problems because a state definition of what an empty home is was lacking. From now on, houses that meet this requirement may be penalized with a tax surcharge of up to 150%, although again it will depend on the will of the council where the property is located.
What will be considered an empty house?
For the purposes of the surcharge in the IBI, this definition will only affect those who own four or more properties (in this it does not matter if it is a company or an individual) and who keep any of them unoccupied without just cause. This excludes properties that are used as a second residence or that are on the market but cannot find someone to buy or rent them. Other justified causes are displacement for work or training reasons, as well as properties that are under construction or that are subject to litigation.
What is the new youth bond?
It is a direct aid of 250 euros for people between 18 and 35 years old. To receive it, they must prove that they have income from work in an amount not exceeding three times the IPREM (the public indicator of income with multiple effects), which is equivalent to 23,725.8 euros. It can be received for a maximum of 2 years (which would be 6,000 euros in total). The Government is looking for a way to combine it with other housing aid that is established in the current state housing plan or in the one that is being prepared for next year. The president, Pedro Sánchez, has said that together it could reach up to 40% of the rental income.
How many young people will be able to benefit from this aid?
With the details that are known it is difficult to pin down, because it will depend on the fine print that is finally approved. But with the latest data available from the Tax Agency, in 2019 there were almost 5 million young people between 18 and 35 years old who earned less than twice the minimum interprofessional salary (which then was equivalent to 25,200 euros). Of them, the vast majority met the requirement of not exceeding 23,725 euros of income either. It would be necessary to know, yes, how many of them live for rent and also what will happen in situations in which they share a flat or other circumstances that limit the perception of the aid.
When will it come into effect?
The next step is for the Council of Ministers to approve the draft of the law and send it to Congress. Thereafter a long legislative process is foreseen. In the forecasts that the Executive sent to Brussels for the collection of covid funds, the horizon for the final approval of the rule was established in the second half of 2022. As for the youth bond, it will depend on how it is processed, if within the law or in the Budgets for 2022.