How regulation has changed rents in Catalonia
Prices fall in regulated towns and cities but real estate sector attributes this to other factors
BarcelonaThe Tenants' Union celebrated the first anniversary of the law regulating rental prices in Catalonia by sending one of its great enemies, real estate website Idealista, a house-shaped cake. The law came into force on September 22, 2020 –it has been appealed but the Constitutional Court is yet to rule– and remains controversial. One year and four months later, the Spanish government has begun to debate a similar albeit a lighter version, while in Catalonia tenants and landlords are divided: housing activists praise the rule and the real estate sector laments its effects. But how has the regulation really affected rental prices during this time?
The Institut Català del Sòl (Incasòl) has published data for the third quarter of 2021. It allows an analysis of four consecutive quarters with the law in force and helps gain a better picture of the state of rents. In Barcelona rents have fallen by an average of 4.8% since the regulation was applied, but Incasòl data also allows to compare what has happened elsewhere, and compara towns where the regulation has been enforced with those which have chosen not to.
"It is very interesting to see how two towns that can be considered siblings have evolved; that is, those that are geographically close, have a similar population volume, the same characteristics and a similar economic activity, when the only difference between them is that one has benefited from price regulation and the other has not," says Rodrigo Martínez, an expert researcher in housing with a PhD in economics from the UB, who is also a member of the Tenants' Union. This is the case, for example, of Blanes and Lloret de Mar. Two coastal towns, with a similar rental market before the law, which, however, have followed very different paths during the last year. Blanes, which declared itself as a "stressed market" and took advantage of the price regulation, has seen rents fall by 3% in the last 12 months, generating savings of €218 per year on average for the families living there. In contrast, Lloret, which did not take advantage of the regulation, has maintained the same price level as a year ago, according to Incasòl data.
This is a pattern that Martínez points out is repeated similarly in other towns, such as Salou and Vila-seca, Tortosa and Amposta or Pineda de Mar and Calella (see chart). In the latter case, for example, Pineda adhered to the regulation and has seen how prices have also fallen by 3% on average, while in Calella rents have risen by 4% in the same period, more than €300 per year. "In absolute terms it is a big impact on the pockets of many households," the economist argues.
A careful reading of the data also shows that other regulated municipalities have not seen a sharp drop but have managed to contain rents more than neighbouring towns. Thus, Manlleu has managed to stabilise prices, while, a few kilometers away, in Torelló (which hasn't adhered to the law) prices have risen by 2% over the same period.
Neighbours keep an eye on each other
One of the most paradigmatic cases, according to Martínez, is between Olesa de Montserrat (regulated) and Esparreguera (not regulated). In both, prices have fallen. But in the former, prices have fallen by 8% since the law started to be enforced, while in the latter they have only fallen by 1%. "We were certain that we fell within the description of a stressed market and we quickly adhered to the law," explains the Olesa Housing Councilman, Jordi Martínez Vallmitjana, who is satisfied with the effect of the regulation. "Indeed, prices have now fallen, but they are still higher than seven years ago because we still feel the effects of the real estate bubble," he continues. This town council, governed by Bloc Olesà party, claims that one of the warning signs for accessing regulation was that in recent years phenomena such as squatting and shantyism, which they had not seen for some time, had reappeared. "Our problem, as in many places, is that we have no new developments and rental supply was already very limited. In addition, there are many families who, due to income issues, cannot access the purchase market," the alderman explains.
A few kilometres away, the City Council of Esparreguera – governed by the socialists and En Comú – admits that prices have been rising there for years and that, in the last year, Olesa "has become a success story" which they want to follow. "The issue has become part of the municipal agenda as municipalities do not have enough tools," admits the mayor, Eduard Rivas, who says that the Council is already working to adhere to the regulation. "We have seen what has happened in Olesa and it is clear. We have already made the formal request to adhere to price regulation," Rivas explains.
Thus, Incasòl data points to a reduction or stabilisation of prices coinciding with the first anniversary of the law that limits them. "And the way the law is designed, they should continue to fall," says economist Rodrigo Martínez, "even with small fluctuations, because when the price reference index is updated, it will reflect the decreases and this will cause prices to fall again," he explains. The real estate sector, on the other hand, questions this discourse and includes other nuances.
The influence of income or the pandemic
The Urban Property Chamber of Barcelona, on the other hand, considers that Incasòl data from a single year does not give enough context by itself and alleges that it does not take into account rent in each municipality nor the historical prices. "This is seasonal, there are always price fluctuations and, often, when the price rises in a municipality, it goes down in a neighbouring one," summarises the Chamber's director, Òscar Gorgues, who adds that in such small towns "a minimum oscillation can mark a big change."
The other major distorter, he points out, is the pandemic. "It is still very difficult to discern which is the effect of the health crisis and which is the effect of the new law," Gorgues points out. "In addition, after the real estate crisis rents dropped a lot and this [campaigners] ignore," he insists. Martínez relativises it. "This hypothesis does not hold up, because the regulation was implemented when the pandemic was already there and prices were still rising. In addition, the health crisis affects everyone equally, but on the other hand, prices are falling especially in the municipalities that are regulated," he replies.
The discrepancies do not end here. Gorgues adds two more variables to the picture: the family effort when it comes to paying for an apartment and existing supply. "If we take into account household income and not individual income, we find that 2021 is the year with the lowest effort," he says. Data from the Chamber indicates that in 2008 families used 46.6% of their income to pay for housing and now this has dropped to 32.6%. Moreover, although Incasòl records more contracts signed, Gorgues points out that it does not specify how many are on the market; therefore, it is impossible to measure whether supply has gone up or, as they claim, has gone down. "More contracts are being signed, but many are also being terminated, there is a high turnover," he argues. "Real estate websites assure us that they have fewer and fewer rental ads, and that is indeed relevant," Gorgues laments. Martínez recognises that more contracts are not a good sign "in themselves", because it may indicate an "overheating of the system", but he is more optimistic: "Today the market is healthy and dynamic".
Thus, after a year and four months, the infinite variables and readings of the rental market still cloud data that favours tenants, with clear signs of price stabilisation. It remains to be seen whether in the coming months supply will stay the same or whether, on the contrary, owners will decide to withdraw the rental apartments from the market because it they are no longer profitable. In the street, the debate is clearer and has not been exclusive to big cities for some time: "People tell us that rental prices are a problem and that more needs to be done," the mayor of Olesa summarises.