Catalonia’s New Decree To Control Rental Prices In Tense Urban Areas Like Barcelona

Real Estate

Barcelona, Spain


Last month the regional government of Catalonia approved a controversial decree law to regulate the housing rental market. In order to address the rising price of rent, the measure introduces rent controls through an official reference index in those neighborhoods where rental prices are considered disproportionate or where there is a high demand for housing.

This decision, which has obtained the support of an important part of the civil society, has also drawn criticism among some experts. Meanwhile, other EU countries have already launched similar regulations to tackle the massive rise in rental prices, a growing phenomenon that has been threatening the main European capitals during the last few years.

The decree law only applies to properties of 150m2 or less and the maximum price rise varies between 10% and 20% above the official reference index -which reports the average price per square meter of a specific location -. For example, if a property has exceptional common areas such as swimming pools or gardens, the homeowner can raise the price up to 15% above the reference index and in the case of a new or renovated property, up to 20%.

The motivation behind the decree: emergency and elections

Catalonia’s government, formed by a coalition of the two main independentist parties, Esquerra Republicana (ERC) – center-left – and PDeCAT -center-right-, has pointed out the urgent need to address the housing problem in the region. “We cannot continue to assume the rising price of rent that does not adjust to social reality or wages. We are in a situation of urgency and it is necessary to stop abuses and gentrification,” explained Ester Capella, Catalonia’s Minister of Justice.

However, the decision was made only a few days before Catalonia regional elections were held, which has been criticized by the mayor of Barcelona, Ada Colau. Colau, a former activist for housing rights who has advocated for rent controls for years, has considered the recent approval of the decree law as opportunistic, although it gives her great prerogatives. According to the decree, the competence to declare an area as ‘tense’ corresponds to the housing department of the government of Catalonia except in the case of Barcelona, that has its own competency.

The rent crisis in Barcelona: residents forced to move

In the last few years -from 2013 to 2017-, the price of rental housing has grown by 49% in Catalonia and 27% in Madrid, according to the Spanish real state portal Fotocasa. This trend has been even greater in Barcelona and its metropolitan area, given the impact of the tourism boom. As a result, a large proportion of housing has diverted from residential to touristic-uses pushing up rental prices.

“The vulnerability that derives from this is being translated, in practice, into the expulsion of many residents from their habitual area of residence, either by eviction or by the impossibility of facing the new prices established when the contracts expire,” states the decree law in the reasoning. “This dynamic of segregation of space according to economic capacity has a very negative impact on urban structure and social cohesion,” adds the text.

The Catalan Competition Authority warns against the decree

On the contrary, some experts are much more skeptical about the benefits that the measure may bring. The Catalan Competition Authority (ACCO), which mission is to ensure the correct competitive operation of the markets in all the productive sectors of the economy in Catalonia has warned that the decree law “could produce significant alterations” in the housing rental market.

On the one hand, the Authority considerers that “the establishment of a maximum price may favor an upward alignment of the rental offer prices.” Also, the organization has pointed out the risk that the measure ends up being counterproductive as the limitation to the rise in prices can lead to a supply drop since the homeowners may prefer to sell their property or keep it empty.

On the other hand, some experts have warned that the Spanish central government could appeal the decision before the Constitutional Court alleging that the decree law could exceed the competence of regional governments to regulate the housing market.

Similar regulations in the EU: the case of France, Germany, and Austria

Currently, Catalonia is the only region in Spain that has established rental prices limitations. However, it is not the first one to do so in the European Union, where other countries such as France, Germany or Austria have similar regulations.

In 2015, Berlin passed the current rent-price law so when the real estate market is tense, homeowners cannot raise the rent more than 10% of the average of the area in which the apartment is located. In fact, this is the regulation that has inspired Catalonia’s decree.

Even the French president, Emmanuel Macron, who does not sympathize with the measure, has recently agreed to carry out a five-year experiment to limit rent prices in France. From now on, city councils will be allowed to limit the rise in rental prices to 20% above the average price of the zone. Cities like Paris or Lille have already announced their willingness to do it.

On its part, Austria is considered a model country regarding housing policies. For decades, the State has focused on the construction of social housing – which represents more than 20% of the total housing in Austria – as the antidote to stop the rise in rental prices while ensuring the supply.

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