Good policies arise from reflection, scientific knowledge, and the use of empirical evidence. Good policies do not have a proper name and they are not improvised in a week. Good policies emerge from agreements that can remain stable over time and thus endure. Good policies are active, not reactive. The so-called Maricarmen decree is the exact opposite, which already starts off on the wrong foot. And it doesn’t start badly because of the name; poor Maricarmen, she has already suffered enough. It starts badly because it begins with the concrete, from the last fallen petal of a dysfunctional housing market. But it does not go to the root. The two fundamental actions our housing market needs can be summarized as how we can build more and faster and how we can expand our stock of social housing, because, although we can do more things, these are only complementary. Building more and faster will help to contain prices and rents. A scarce market mainly benefits affluent families and investment funds. Building more social housing helps the vulnerable like Maricarmen. The rest are fireworks that may help or become yet another obstacle, but, as with rises, they fall and, no matter how beautiful they may seem, they are ephemeral.
“Building more social housing helps the vulnerable like Maricarmen. The rest are fireworks”
But let’s break down the decree. Pardon, the decrees. Things of politics. Someday our politicians will reach agreements that endure over time, and policies affecting the welfare state will not be subject to fluctuations; they will be more stable and consistent. The admired stock of social housing in Vienna was built over more than a hundred years of consistent policy. Curiously the points I’ve mentioned in the previous paragraph are hardly controversial. I don’t think I’m saying anything outrageous if I say that, at minimum, 70% of Congress would agree on these two measures. And yet we remain anchored without tangible solutions. Why? My suspicion is that, in the case of construction, there are problems between left-wing parties and among administrations. In the case of social housing, it’s simple: we dedicate only 1% of our budget to housing. The allocation that has grown the least in the last ten years. Housing has not been nor is a priority for our politicians once we go beyond headlines and decrees.
The first decree includes the extraordinary and mandatory two-year extension for contracts in force that expire before the end of 2028, in addition to extending protection against evictions until 2030 and other housing measures: the regulation of seasonal rentals and of structurally oriented room rentals and the prohibition of housing purchases by vulture funds until 2028. It also highlights a 0% interest credit line to facilitate the purchase of a first home (up to €50,000), initially for young people. There will also be tax bonuses, conditioned, for both landlords and certain tenants.
On the other hand, the proposal includes an extraordinary extension of contracts and the extension of eviction protection until 2030. I ask you to perform a simple exercise. Imagine you are a landlord with a dwelling available for the residential rental market. Would you enter this market with the risk that, if the tenant defaults, you may not have access to your rent or to your property? Would you enter a market where your contract is “seized” for at least two years (depending on whether the second decree comes into effect)? Even if you don’t like the answer, I know you’re as clear as I am. And who is harmed by landlords not entering the market? Julia, Sofia, Martina, Lucia, and Maria. That is, the potential tenants, with a Generation Z name, who will go looking for a flat and will not find one or will find it so “shielded” that they cannot access it. They are invisible and the streets will not help them.
The regulation of seasonal rentals or room rentals is again misidentifying the problem. It has already been seen in Catalonia, where room and seasonal rentals have not returned to the residential market after regulation. If a landlord with a rental flat has preferred seasonal or room rentals, it is because the other market is heavily regulated and regulation always works against him. In the tight areas of Catalonia, this figure has increased the most. Why? With regulated residential rents and lack of protection against defaults, the landlord has sought alternatives and found them there. There he found a more solvent market, such as the expats, and now that he has discovered it, he is not going to leave, even if you regulate it. Because when you have a regulated rent, it is better to rent to a solvent person than to a potential vulnerable one. Again, policies that go against those who want to access a rental. Young people and immigrants will continue to be the last in line. Regulation will only entail a transfer of income from the landlord to the seasonal tenant. I’m not sure who has the lower rent. Therefore it isn’t even clear that it is a progressive policy.
“If a landlord with a rental flat has preferred seasonal or room rentals, it is because the other market is heavily regulated and regulation always works against him”
The decree proposes raising the VAT on tourist flats to 10%. This I do consider a good measure. To begin with, because it was an anomaly that taxed differently from other forms of accommodation. But, in addition, although regulation is very tempting, it is usually more effective to find the right incentives to change the landlord’s decision. Lower taxes on rent if the destination is residential and raise them if the destination is tourist or seasonal. This could even be done with the IBI (property tax).
Regarding the prohibition of speculative purchases by vulture funds, first one must define what is speculative and second what a vulture fund is. The minister herself has called “vulture SME” to Urbagestión. Will Urbagestión enter the category defined? It does not matter, the headline is perfect. We remain very focused on the 8% of the homes that are rented, which belong to companies. And we will stay there because it is an external enemy. And we like external enemies very much. What is a speculator? For me it is fairly clear: someone who, for example, buys a home this year and sells it the same year for 20% more. That is speculation. They did nothing with it, only trading. If you do the same, but wait a while, as that time passes, you become a speculator, but a bad one, a poor investor. Because housing is heavily taxed just for possession, so the longer you hold it, the lower your return. Another possibility is that the property you buy needs rehabilitation to sell. If the investor does so and sells later at a higher price (we would need to assess the level of renovation and the price increase), that is no longer speculation. It is a kind of business. Of course, if you buy it to rent it out, you are not a speculator either. But regardless of the semantics, the mere suggestion of embryonic ideas like “prohibit speculative purchases” only damages legal certainty and the rental supply and brings us closer to countries that are in an even worse situation regarding accessibility in the private rental market.
Spain continues along the lines of the worst part of the Catalan laboratory without having assessed its policies. That is, remove the most interesting thing: the word laboratory. What is not evaluated is not science. The Catalan legislator tried to condition who can acquire a dwelling and for what purpose. In the declared tense zones, the purchase of individual dwellings would, in general, be reserved to those who designate them as their habitual residence or for certain relatives, while the acquisition of entire buildings would only be possible if they are entirely destined for residential rental with rent controls. I understand that something similar would be done in Spain. In Catalonia, the Council of Statutory Guarantees ruled that it violated the Constitution. In the Netherlands, this policy has increased property ownership (as is logical) in exchange for reducing the rental supply and raising prices by 4%. But even bringing it up is dangerous. Even raising the idea of such laws affects investors’ expectations and they move away, and as a result the construction pace slows. It’s a very bad idea even to consider it. Bad news for a scarce market. It’s different to “play” with incentives, as we’ve already seen.
Regarding the 0% credit line to facilitate youth purchases, it is a good idea. It might even raise the limit because the financial system already assesses whether that home is beyond their means. And in the big cities, where youths cluster and accessibility problems exist, that €50,000 cap is small. It is a good idea that makes me think that another good idea (the guarantees for youths) is not functioning at the expected level. We must look at the details in the design of policies.
Regarding landowners’ bonuses, I would start with those for the owner. And I’ll explain. Bonuses to the owner must go in line with aligning our objectives with their incentives. I’ll start with one that will not appear: that anyone who rents in the residential market is more rewarded than if the property is left empty or allocated to another rental market. To increase supply. And let’s continue: that their bonus is greater the more their price diverges from the market price. Now there are already tax bonuses in the IRPF. What is proposed (that they could reach 100% when they reduce the rent price by 5%) was practically announced by Pedro Sánchez some time ago. Why not also use the IBI? Regarding bonuses to tenants (with incomes up to 30,000 or 33,000 euros), they are a good idea, but not when the market is in shortage. It is likely that those bonuses will go straight to price increases for landlords. It is essential to monitor how they are designed.
“Bonuses to the owner must align with our incentives”
Finally, reducing the VAT on protected housing to 4% seems to begin addressing a major incongruity. The measure is not very ambitious. Much of protected housing already pays 4% VAT (the special regime whose promotion is public). Lowering from 10% to 4% for the general regime is a good idea. But allow me to be aggressive: we need social housing; the VAT on this housing should be 0%. Given the limited production, every facilitation helps. And if you want, here’s another measure: do you want a young person to buy their first home? VAT and ITP at 0%. Do you want to disincentivize cumulative purchases? Gradually raise the VAT-ITP, starting from 10%, by a couple of points, for example, with each purchase.
The second decree, the one with the tougher time ahead, seems set to focus on trying to make contracts indefinite. Automatically extending them. The indefinite contract only makes sense as it is framed in countries like the United Kingdom or Finland (curiously the examples cited by the Renters’ Union, but without explaining the full context). In these countries the indefinite contract gives security to the tenant, but to the landlord it gives legal certainty: after two or three months of nonpayment, eviction happens (in Spain we take two years and now they seek to prevent it); the rent can be updated to reflect market evolution each year; with about four months’ notice, the dwelling can be recovered to address a personal or family situation. There the indefinite contract does not cause problems. Security for all. The opposite is protecting the tenant today, at the expense of tomorrow’s.
Note that many of the problems we’ve highlighted are something like the “paradox of the still image.” We tend to assume that everything will stay the same except for what we change. But that is not the case. We think that banning evictions or forcibly extending contracts is a good idea because we protect today’s vulnerable, but we don’t realize that supply will react and tomorrow’s vulnerable and young people will be left out. The same happens with prohibiting speculative purchases or indefinite contracts without giving landlords legal certainty. The reduction in construction and supply will worsen the market. Reality is not a photo in which we erase what we don’t like, but a video, and that erasure will have consequences in the next frame. That is why incentives in economics are so important. To predict what the next frame will be.
“Reality is not a photo in which we erase what we don’t like, but a video, and that erasure will have consequences in the next ‘frame'”
We need social housing so that the State can cover evictions like Maricarmen’s without depending on the social values of any company. We need laws that facilitate construction so that prices and rents do not rise due to scarcity. And we need a rental market where everyone is secure. As you can see, there are some good ideas in the decrees, but there is no trace of the two most necessary policies. Again, the urgent and media-driven issues overshadow what is important.
