Last May, the Spanish Senate approved the new Housing Law, with the aim of supporting the most disadvantaged groups by imposing certain regulations such as rent price limitations or the promoting public housing.

Some notable changes in this new Housing Law with respect to the previous one may be the following:

Rent caps: Landlords can now only increase rent prices by a maximum of 2% in 2023 and 3% the following year. From January 2025, a new index will come into effect that will limit these increases to a percentage lower than the Consumer Price Index (CPI).

Price controls for small and large landlords: Owners of flats in high-demand areas will not be able to increase the rent for their leased properties. While owners of less than five dwellings must freeze the rent at rate of the last rental contract in force, landlords with more than five dwellings will not be able to set a price higher than the one established by each Autonomous Community.

Landlords will bear real estate fees: Real estate fees will be covered 100% by the landlord, whereas previously agencies could charge a commission to the tenant for their services.

Tax Incentives for Owners: As the Government tries to achieve a balance, tax incentives would be offered to owners in high-demand areas to benefit from personal income tax deductions in case of applying discounts on rent, or renting to young people or other vulnerable groups.

How can the new Housing Law affect real estate investment?

The new Law has autonomous application, that is to say, it is the Government of the Autonomous Community the one responsible of its approval and enforcement. This may affect both small and large property owners (those who own five or more units) by setting rent caps for their properties in accordance with what the Autonomous Community establishes.

As a result, landlords are expected to see a decrease in the profitability of their properties. In the long term, the Law aims to limit unregulated rental activity by setting maximum prices in an effort to restrict potential landlord profits. This may eventually encourage property owners to sell their assets and further discourage real estate investment in the sector.

On the other hand, these changes may also bring uncertainty to the market, meaning that foreign investors may no longer see residential investment in Spain as a lucrative venture and may instead invest in other countries where they can find greater incentives.

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