White smoke for one of the most ambitious laws of the Executive in social matters, committed to Brussels and which has led to clashes between PSOE and United We Can. The Government has reached an agreement with its partners in Congress to “unscrew” its Housing Law and ensure its parliamentary support. The announcement was detailed this morning by ERC and EH Bildu and, beyond its political or internal key reading in the Government collation, it leaves some relevant news for the pockets of those who pay rent every month.
Especially those related to the CPI.
What about the prices? As of today, the LAU allows landlords to annually update the rent of their current contracts based on the CPI. If after a year inflation exceeded 6%, the rental price could rise equally (from €600 to €636). Last year the Government set an extraordinary ceiling of 2%, later extended to 2023. It was an extraordinary measure to protect the tenant… which is now transferred to the role of the law.
The “limitation” affects contracts already in force, whose duration is five years. In the case of owners who wish to offer a new rental to the market in “stressed” areas, relevant caps are included, as we will see below.
What will happen next year? That a 3% limit will be applied to rental updates. The decision continues a measure that is already being applied this year, although the current brake, which will be maintained until the end of 2023, is somewhat more severe for landlords: it is set at 2%. Both measures, both the 2% cap already in force and the 3% cap that will be applied in 2024, want to prevent the rents paid by tenants from being dragged down by inflation that in July reached its highest level since the 1980s, with a rise that was close to 11%.
And beyond that year? That is perhaps the most relevant novelty. Starting in 2025, a new index will be created, yet to be defined, but which, in the words of Oskar Matute, an EH Bildu deputy, will serve to smooth out the effects of a CPI that “has shown to produce enormous fluctuations”. What do we know about that index today? Not a big deal. As Matute himself recognized during this morning’s presentation, “everything is yet to be decided.” We only handle the brushstrokes that have accompanied the announcement: it will be “more stable and lower than the evolution of the CPI”.
Both ERC and Bildu have stressed that the current index, which is used to calculate rent updates each year, “has shown that it can generate enormous fluctuations in a few months with crazy increases that make rents more expensive without limits.” The new reference seeks greater stability.
Are they the only changes? Not much less. One of the concepts to which the new standard has paid the most attention is that of the “stressed area”, a fairly eloquent label that identifies those points where there is greater tension in the rental market, which results in lower prices. high and harsher conditions. When the requirements established to consider a nucleus as such are met, certain relevant measures for income may be applied.
The country details one that affects new rental contracts, those that are signed with a new tenant. It will not be worth taking advantage of the change to shoot prices. The previous contract will be taken into account and limits will apply. Nor will it help if the apartment has just entered the market or is reinstated after years away. Even in these cases, communities and town halls can link them to the new index that applies to large owners.
And what requirements do the “stressed areas” have? It will arrive with one of the two conditions provided: “That the average charge of the cost of the mortgage or rent plus basic expenses and supplies exceeds 30% of the average household income; or that the purchase price or housing rent has increased at least 3 points above the Consumer Price Index in the five years prior to the declaration of a stressed area”.
Big forks? Large homeowners in the rental market. Another of the concepts that will be greatly influenced by the new standard. The figure itself was already contemplated before, but it has been decided that this “umbrella” should be much larger than originally planned: to be considered as such, it will be enough that the owner —and natural persons are considered as such and legal— own 5 homes, not 10, as was suggested before.
The label is relevant. elDiario.es specifies that in the stressed areas the law will regulate rents “both for real estate contracts that are on the rental market and for new contracts.” “These ceilings will be established, depending on the type of contract and property, by indexing to the previous income in force for small owners and by applying the price containment index for large holders,” explained ERC and Bildu.
Any more news? Yes. The text prohibits “evictions without a predetermined date and time” and also details that the initial fees of real estate agencies must be assumed, 100% by the tenants, also prohibiting an increase in rents to incorporate new expenses. The distribution of expenses is therefore defined: “The real estate service is provided to the owner, and therefore it will be the owner who must assume the expenses that said service generates”.
Does the context matter? A lot. As Matute himself recognized, a good part of the detail of the index that will be applied beyond next year still remains to be defined. Therefore, important aspects would remain to be defined. Another aspect is also important: the Government sets the regulatory framework, but both the autonomous communities and municipalities have jurisdiction over housing.
Cover image: Alexander Awerin (Unsplash)
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