Rent control, a short-term surgical measure that comes late

United We can start the PSOE’s commitment to regulate rents, which led to the agreement for the Budgets that were approved on Tuesday in the Council of Ministers. In three months, the Government will have to approve a Housing Law that includes income intervention and in four months that project will have to reach Congress.

The first tool for this purpose is ready: the rental price index designed by the Ministry of Transport, Mobility and Urban Agenda, which will make it possible for autonomies and municipalities to determine where the areas are where prices have been exceeded and, therefore, those that will be subjected to containment or even downgrades. The agreement between PSOE and Unidas Podemos also includes the containment of “unjustified increases in new leases”, for which the price of the previous contract will be taken as a reference.

The news caused controversy in the sector. From Tectum Global Management they value that regulating prices will reduce the offer, raise prices and slow down the rent. From the general council of property agents, Jaime Cabrero ensures that rents are already falling by up to 10% due to the economic crisis and without the need for regulation.

Ferrán Font, director of studies at piso.com, adds that the measure is late. It also points out that although “the difference between families’ ability to pay and the evolution of incomes makes it necessary for public administrations to act”, “limiting incomes is not the solution.” According to Font, “The measures must be focused on improving the economic situation of tenants and increasing the number of rental housing through public-private collaboration, as in Vienna or Sydney”.

International experience

But Spain is not the only country in which controls are proposed. And there are varied experiences. In Germany They have been applied since 2015: the legislation enables the governments of the federal states to allow their municipalities to establish controls in stressed areas and, in view of the persistent problems of access to housing, in this 2020 Berlin was marked a maximum price and rent freeze.

In EE UU there are also new control measures. Thus, in California, rent increases have been limited to 5% per year plus inflation for ten years from 2020. In Los Angeles, in particular, the increase is limited to between 3% and 4%, although only to non-single-family homes that were built before 1978. In New York, too, control is limited to older homes. And in the nation’s capital, Washington DC, the rise is 10%.

In FranceSince 2012, some municipalities –Paris among them– have linked the rental price of a new tenant to the rent of the previous one to limit increases in the revaluation index of current leases and their renewals. In 2014, the possibility of setting limits to increases in cities was established and in 2019 another regulation took over to limit the increase to 20% above a reference price level.

Another modality governs Netherlands, where prices are regulated by a system of points on the quality of the apartment (size, equipment or location). And in Sweden there is a kind of collective bargaining between tenant representatives, municipal housing companies and private owners.

Control effects

The Bank of Spain has evaluated the effects of all these measures and has concluded that although “They have been effective in moderating the rental price in the short term in the regulated segment”, at the same time, they can cause rises in the unregulated segments. The agency appreciates that price controls have the appeal of immediately and directly addressing accessibility issues. But it warns that, maintained in the long term, adverse effects appear, such as the segmentation of the population according to their economic conditions.

In return, the agency believes that the increase in the public offer of affordable rent is focused on the cause behind the price increase: the insufficiency of apartments for rent. But he warns that it involves a large budgetary effort –Spain stands out for being at the tail end of social housing for rent– and that it takes time to develop it. Hence the idea of ​​public-private collaboration to increase the offer. But from the Tenants Union they reject it. Javier Gil, his spokesman, believes that the short-term solution to the problem of access to housing is to control prices, not increase supply, a “market” remedy that, in his opinion, only increases the dynamics of economic cycles and the business opportunity of the private sector. It also augurs pressure so that the Government desists from regulating prices.

More than 2,200 million for housing policies in 2021

The housing budget and urban agenda will reach 2,250 million euros in 2021, according to the Budgets approved this Tuesday in the Council of Ministers. The figure is multiplied by five that collected in the latest public accounts and, in addition, it is the highest in history. The bulk, 1,650 million, will go to the rehabilitation of homes and neighborhoods, while 215 million euros will be dedicated to the affordable rental housing plan, in addition to another 350 million, which will be applied to the current program.

One of the housing policy problems that Minister José Luis Ábalos has been in charge of pointing out in recent months is that the existing publicly owned social housing stock in Spain is limited to 290,000 homes (180,000 owned by communities autonomous and the rest, municipalities). It is a figure that contrasts with the more than 2.3 million protected homes built between 1981 and 2019. And this is attributed to the fact that the official protection houses have been mostly destined for sale, thus promoting housing public for rent has had very little weight, not only in absolute terms, but also in relative terms at the European and even global level.

For this reason, the new Housing Law – which will be co-proposed by the vice-presidency of Pablo Iglesias and the Ministry of Transport, Mobility and Urban Agenda – will contemplate measures to “promote the development of public stable housing parks.”

Regarding the control of rental prices, Ábalos promised that the chapter of the law that collects it will show “absolute and scrupulous respect for the powers of the regional administrations.” There is hardly any country that has state frameworks, but the competences are usually regional and the application corresponds to the municipalities. But from Social Rights they admit that the debate on whether to force all administrations to intervene in prices will have to take place in the coming weeks.

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