A year ago, the Government applied an extraordinary measure against runaway inflation that was feeding into the pockets of households. It was based on establishing a ceiling of 2% for all rents subject to increases in the CPI. It came at a time when tenants with a contract in force they had to face very drastic rent increases since the CPI began to climb significantly during those months due to the war in Ukraine.
Now, the Government considers that in 2024 this limit will go from 2% to 3% and then establish a ceiling with a new price index that is still being designed. However, several experts and real estate companies talk about the most notable consequences that the measure is having: more expensive prices and less supply. Let’s see what’s happening.
A 3% rent cap. The Government has proposed extending the ceiling on rent increases for another year and raising it in 2024. This measure, framed in the negotiations of the stagnant Housing Law, could arrive soon, according to El País yesterday. Although nothing is yet clear, it would have the following objective: to set a maximum of 3% to rent updates throughout 2024, while preparing a new index that would come into force later.
What is it for. First of all, it should be mentioned that this rent limit refers to rent updates according to the CPI. That is to say, only to the contracts that stipulate in a clause that are likely to be increased by the CPI, otherwise, no increase is paid. When inflation began to rise last year as a result of the global economic context, the average increase in rents in February was €53 more per month as a result of the 7.6% rise in the CPI registered at that time. This meant €634 more per year. And of course, the situation of the tenants made political intervention urgent.
The government’s decision to extend the measure for another year It meant savings for households of amounts close to €1,200 in some locations this 2022. Especially if we take into account the difference between raising the rent by 10.8% (July inflation) with only 2%. For an average lease in Madrid, the distance between the two values was €97.5 per month.
Consequences: higher prices. But the measure with which they wanted to protect tenants has supposedly had a secondary effect on the rental market, according to some companies in the sector: boosting prices and reducing the supply of available properties. According to data from Alquiler Seguro, the average amount of rents formalized in December 2022 has increased by 14% year-on-year. And according to idealista, prices have risen by almost 9% and they emphasize that landlords are terminating contracts to create new ones with an already incorporated increase.
However, it should also be noted that, despite the alarmism of the companies (they are doing business with it), this is not something that only the measure has caused. The rent was already rising before the application of the measure.
Less offer. On the other hand, the lack of housing was already a problem for about three years, it is not something exclusive today. According to several companies, it has been accentuated because many landlords have decided to withdraw their apartments from the market. According to idealista, the supply of rentals available at the end of 2022 was 17% less than a year earlier. And it is even worse in cities like Malaga (42% less), Madrid (32%) or Barcelona (28%). Pisos.com also points out that the measure has discouraged landlords at a time when “the demand for tenants is increasing.”
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