The limitation of rental price increases could be counterproductive

On March 29, the Government approved a royal decree-law by which urgent measures were approved to respond to the consequences of the war in Ukraine. And among the measures is imposed a limitation on the updating of rental income.

This measure, which aims contain the price of rentals at least until June 30, it can have an effect contrary to the desired one, as we will explain below. But first let’s see what the measure consists of.

Limitation of income updates

According to the Urban Leasing Law, during a rental contract (which lasts 5 years) the rent can be renewed every year, if indicated by it. This update must be linked to some reference index, which It’s usually the CPI.

Therefore, those who are due to update at this time could be subject to an increase in the rental of securities of around 10%, since we have triggered inflation.

With the decree approved by the Government, from the entry into force of the Royal Decree-Law (March 30, 2022) and June 30, 2022, the update of the rent must be agreed between the parties. And if there is no agreement, the update will be at most what is indicated by the Competitiveness Guarantee Index (IGC).

This IGC is an index that is significantly lower than the IPC. The latest data published is at 2.02% and since its creation in 2015 it has only been positive for six months. Therefore presumably in the coming months it will be around 2-3%.

A new market intervention without offsets

The Government, with this measure, returns to intervene in a private market without making any contribution of funds to those affected. In this case, the owners, who in many cases are simply families who have their savings invested in homes to provide them with income.

When the State does not really help the vulnerable but punishes them with regulations that make them pay for the private hands

As with the prohibition of evictions, the Government regulates harming one party and does not compensate financially. It is very cheap to legislate like this, without touching the Budgets. But this distances investors from a market (the rental market) that precisely needs investment: more houses. With these types of measures, the market loses its attractiveness.

But it could also be counterproductive

Let’s be clear: very few landlords would dare to raise rents by 10% for their tenants. Such a movement, when the price of rental housing has fallen slightly in recent years, would spur tenants to seek a change of housing.

Therefore, most landlords, who know that managing a change of tenant is complicated (it takes time, money and risk), rents were not going to rise in the annual update.

However, now they have the blessing of the Government to at least raise rents by 2%. And practically everyone will. is the value that the Government has determined to be “fair”.

Again another false move by the governmentwhich has surely made rents rise above what they would have done had the increases not been limited, and on the other hand, it distances investment as we are facing an even more intervened market.


Source: El Blog Salmón by www.elblogsalmon.com.

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