Dark times for the rental market

The rental market is in a period of great uncertainty, with prices reaching historic levels. According to sources consulted, the growing demand is facing a constantly decreasing supply of rental flats, due to factors such as the decline of small investors and the uncertainty generated by the recent implementation of legislative changes in the sector.

Experts in the field, whose opinions were obtained through consultations with various sources, argue that a recovery of the rental market, with more reasonable prices and a supply that meets the needs of young people and families, is not in sight in the short or medium term.

The rental market is fractured and there is not enough supply to meet the growing demand for rental housing, no solution is foreseen at the moment and no improvement is expected. It is a highly stressed market with structural problems related to both supply and demand.

The shortage of supply for sale and rent is one of the main factors impacting on house prices. In the last 15 years, there has not been an adequate spatial planning and urban regeneration policy to meet current needs.

In addition, there have been concerns about the adverse effects of the Housing Act. Rental prices have continued to rise since the end of the crisis caused by the pandemic, reaching an all-time high in August 2023, with an average of 11.8 euros/m2 per month, just 1.1% below the peak recorded in 2007.

In large cities, a tenant with an average salary cannot afford the current rent, which exceeds 1,000 or 1,200 euros in many cases. Moreover, supply has decreased, especially in central areas.

The imposition of price controls in some regions, such as Barcelona, has exacerbated the gap between supply and demand, creating tensions in the rental market.

Average prices across Spain will reach 900 euros per month, a far cry from pre-pandemic levels of no more than 800 euros per month.

Experts attribute the loss of supply to changes in the Housing Law, such as the transformation of traditional rental housing into other types of rentals, such as rooms or seasonal rentals.

It should be clarified that although some of these forms of rental are legal, if the purpose is to reside permanently in the rented space and it meets the necessary requirements to be habitable, it is considered a housing lease.

The reality is that the majority of housing has been destined for tourist rental or has been withdrawn from the rental market due to the legal uncertainty generated by the Housing Act.

A recently consulted report claims that the changes introduced by the Housing Law could reduce the rental supply in Spain by 11.7%, which would mean the disappearance of around 100,000 homes currently rented.

It is recognised that there are no short-term solutions to resolve this situation. However, it highlights the need for effective and successful policies by public and private administrations to increase the supply of rental housing. This includes the promotion of public-private projects on government land to build rental housing, which could help reduce prices, especially for young people and disadvantaged families.

Another option mentioned is the adaptation of disused offices and premises into habitable housing, as well as the promotion of alternative housing solutions, such as “coliving”, to address the needs of the individual.

Recently, the Consejo General de los Colegios Oficiales de Agentes de la Propiedad Inmobiliaria de España (Coapi) has urged the acting Prime Minister, Pedro Sánchez, to invest 0.6% of GDP, or €8 billion, in supporting Housing Plans. This reinforces the need to increase the public rental housing stock in Spain, which will require significant agreements between administrations for its construction. Currently, the public housing stock in Spain represents only 2% of the total housing stock, in contrast to the European average of 9%. Therefore, government plans are being drawn up to build 184,000 units in the coming years.