Spain’s new housing law enters into force: Five key points you should know.

Spain’s new housing law or Ley de Viviendas finally comes into force from Thursday May 18th, here's what you need to know about how it will affect you.

Spain's long-awaited housing reforms, the Ley de Viviendas finally comes into force. The Spanish government is to approve the new law definitively this Wednesday, May 17th without changes, which will prevent it from having to return to Congress, meaning that it will be up and running in time for the regional elections on May 28th.

It will be published in the Official State Gazette (BOE) the next day and come into force from this Thursday, May 18th.

Here are five key points about the law you should know and how they will affect you, whether you rent a property or you’re a landlord.

Regulation of rental prices

One of the most important features of the new law is that it allows communities and town councils to indicate ‘stressed’ market areas in order to establish limitations on rental prices.

For an area to be considered ‘stressed’, it must meet at least one of two requirements. These are areas that exceed the Consumer Price Index (CPI) of their respective province by five points and areas where families dedicate more than 30 percent of their salary to paying the rent.  

In these ‘stressed areas’, the price limitations on leases will be different depending on whether the owner of the apartment is someone who has more than ten homes - a limit that can be reduced to five if the council so wishes - or if they own less than five. Owners of more than five properties will be obliged to lower prices up to a certain limit that will be established by the Ministry of Transport through an index. 

Rent control index

Up until now, during the first five years of the rental contract, the landlord had the right to increase the price each year by the same percentage as the CPI, but the new law will also establish a new index that will replace inflation when it comes to limiting the annual increase for rental payments from 2025 onwards.  

In 2022, faced with relentless inflation, the Spanish government approved a law to prevent annual rent increases in line with the CPI during 2022. In doing so, they set a two percent ceiling on increases, which the Spanish Cabinet then subsequently extended and will remain in force throughout 2023.  

In 2024, a ceiling of three percent will apply, whatever the level of inflation. Landlords may not raise the price of their contracts already in force above these percentages.  

Agency fees

Anyone who has ever rented an apartment will be aware of agency fees and what an extra financial burden and worry they can be. In Spain, agency fees are usually equal to one month's rent, sometimes more, and fortunately for renters the new law shifts the onus to pay fees onto owners, not the tenants.

In addition, the law also prohibits increases to fees beyond what is advertised or in the contract, such as forcing tenants to pay expenses for 'la comunidad' community or municipal fees.

Tax penalties for empty apartments

The new housing law will offer municipalities the possibility of financially penalising those who keep their properties empty or unoccupied in order to encourage them to go on the market.

This penalty will be levied through a surcharge on the Real Estate Tax (IBI) of up to 150 percent. A property will be considered "permanently unoccupied" when it remains empty "continuously and without justified cause for a period of more than two years", provided that its owner has four or more houses. 

If the property has been empty for two years, the IBI surcharge may be up to 50 percent or "up to 100 percent of the net tax rate when the vacancy period is greater than three years," the law states. City councils may increase the surcharges for landlords who own two or more empty properties in the same municipality.

Tax incentives

This is the only part of the law that will not enter into force this from May 18th but will instead do will do so as of January 1st, 2024. The current system of tax incentives will remain in force throughout the rest of this year.

From 2024 onwards landlords may be able to benefit from the new housing law through several tax incentives. Currently, landlords can deduct 60 percent of the amount they charge the tenant from their personal income tax payment, but this will be reduced to 50 percent in areas that are considered to be ‘stressed’.   

However, depending on the rental prices that landlords in ‘stressed’ areas charge, these deductions can almost double. The tax deductions can go up to 90 percent if the owner lowers the rental price by at least five percent compared to the previous contract; and up to 70 percent if a new home is put on the market and rented to a young person between the ages of 18 and 35 or if it is rented to the public administration.