Green Light From The Council Of Ministers To The Housing Law

The Council of Ministers approved this Tuesday the preliminary draft of the housing law (Law for the Right to Housing) that empowers the autonomous communities to limit the prices of rents in stressed areas and urges the municipalities to recharge the Property Tax Property (IBI) up to 150% to punish empty homes. All with the focus mainly on the big forks.

The Government’s plans are for the law to pass parliamentary procedure at the end of this year, as confirmed by the Minister of Transport, Mobility and Urban Agenda, Raquel Sánchez, at the press conference after the Council of Ministers. When it goes ahead, it will be the first to be approved on this matter in a democracy.

Three main axes
The rule, as it appears in the Government’s preliminary draft, will allow limiting the price of rents in stressed areas to legal persons (companies and institutions) that own ten or more homes.

The rest of the owners (large individual holders and small holders) of these areas will be able to increase prices by up to 10% on the last rent of the previous contract, if the owner rehabilitated the apartment two years before expiration, if they applied works that suppose a 30% energy savings, accessibility improvements or when leases are signed for periods of 10 years or more.

Government housing law sketch: focus on funds and 18 months of adaptation
The other keys to the housing law: who is affected, how many floors will prices drop …

To try to contain rental income, the rule establishes for new contracts a general bonus of 50% in the IRPF of the lessors, adjustable according to various criteria, up to a maximum of 90% for those who lower the price by 5% of your rentals.

And to bring empty homes to the market, the future law urges municipalities the possibility of applying a surcharge of up to 150% of the liquid IBI quota to those that are unoccupied without justification for more than two years.

Six keys

1. What is a stressed zone

The autonomous communities may declare a territorial area as a stressed residential market area for a period of three years (extendable if market conditions do not improve) after verifying that in that area the rental income exceeds 30% of the average income per household and that in the last five years it has risen five points above the CPI of that community.

2. Timeframe for price benchmarks

The incomes of legal entities that own more than ten homes in stressed areas are limited according to a system of reference price indexes. Although the Ministry of Transport, Mobility and Urban Agenda presented its own in June 2020 , there is a period of 18 months from the entry into force of the law for its preparation. In other words, the regulation of rents for large holders would apply from the next legislature.

3. Income tax deductions (new rental contracts)

The current 60% reduction in personal income tax for net income from the rental of a habitual residence will now be 50%, but it is modulated up to 90% in stressed areas . For new housing rentals for young people between 18 and 35 years old, the reduction will be 70%, while for protected housing and for houses rehabilitated in the last two years, 60%.

4. Surcharge in the IBI for empty houses

The municipalities (those led by the PP have already said that they will not apply the measure) may apply a surcharge of 50% in the liquid share of the real estate tax (IBI) to properties for residential use that remain unoccupied without justification more than two years; 100% if it is empty for more than three years and 150% if the owner has several unoccupied properties in the same municipal area.

There are certain causes that will justify having an empty home and that will exempt the owners from the surcharge. They are the transfer for work or training reasons, change of address due to dependency, health or social emergency, properties destined for second residence with a maximum of four years of continuous unemployment or those in works or immersed in some litigation. Among the exceptions, the one that exempts properties that are for sale (a maximum year) or for rent (with a maximum of six months), with prices at market conditions, stands out.

5. Suspension of evictions

As soon as the law comes into force, the courts will automatically suspend evictions for non-payment of rent of vulnerable families for two months, if the plaintiff is a natural person, and for four months if he is a legal person. It is one of the great novelties of the standard.

6. More social housing and ‘incentivized affordable housing’

30% of the urbanized land will be reserved in the new developments for public housing (of that percentage, half will go for rent) and 10% in the actions of reform or renovation of the urbanization.

The law also creates the figure of ‘incentivized affordable housing’, which will be privately owned with urban and tax benefits for rent at reduced prices.

The real estate sector has once again shown itself far from the norm. For Ferran Font, Director of Studies for the real estate portal flats.com , “the new Housing Law will come out with very little consensus, especially at the political level. In this sense, it is very complicated that, without greater alignment with the rest of the political formations, be it a law that is applied in the long term, which is what is really necessary for it to bear fruit “.

From Fotocasa, for their part, they assure that “the new Housing Law should provide more legal certainty and incentive measures.” Regarding the stressed market area, it points out that compliance with the criteria that allow declaring a stressed area is not entirely rigorous due to the scarcity of official data that exist regarding rental prices. In addition, the inclusion of utility costs in the formula is very relative and imprecise, since it depends on the particular consumption made by each tenant.

However, it is very positive, they add, that the public administration commits itself to the development of a specific program of measures, seeking formulas for collaboration with the private sector to stimulate the supply, launching additional public aid or promoting the supply of social housing. It would be very effective for this involvement by the authorities to be carried out before declaring an area as stressed.

Regarding the freezing of rents for 3 years, they believe that it is an interventionist measure for small owners that does not have the approval of the landlords, which could be reflected in the contraction of the supply of rental housing, since for them it is a disincentive measure. An action that will make access to housing even more difficult and that can make the stock of rental housing even more scarce.