No Silver Bullet for Rental Market in Spain

The situation with rental housing availability in Spain remains abysmal. The number of long term rental units continues to drop as demand continues to rise. We need a solution but there’s no “silver bullet.”

At the beginning of April, hundreds of thousands of Spaniards demonstrated in over 40 cities demanding real solutions. Everyone agrees that something has to be done, rental costs are rising at a rate higher than incomes or the rate of inflation.

In 2024, rental prices in Spain as a whole rose by 11.5%. That was spread unevenly, meaning that in Spain’s cities, rental prices rose more steeply, with Barcelona witnessing a rise of 13.5%, and 15.3% in Madrid.

This comes against the backdrop of a new housing law in Spain, which regulates prices, rental contracts, legal remedies for okupas (home occupations), as well as tax incentives for landlords who provide long term rental contracts at government set rental rates – or lower.

In Spain’s fractured political landscape, it’s no surprise that this law has generated a lot of debate. Is it throwing gasoline on the fire? Is it a solution? Or is it neither?

To understand what is unfolding and the likely impact of the current round of reforms, we need to take a deeper look at the situation.

The place to start is the imbalance between supply and demand. This is really the root of the problem. Ironically, it is itself caused by measures that are meant to solve other crises.

It’s not a secret that Spaniards are not having children at anything close to the rate needed to replace the aging population. The rate of replacement is currently 2.1 children per female but Spanish born women are only having 1.12 babies per woman. This represented a decline of 2.6% compared to the year prior.

Without immigration, Spain would suffer a number of problems due to the decline in the workforce, the relative rise in the number of pensioners drawing on their public pensions, etc. It would also damage the ability of Spain to grow and modernize its economy.

According to a report by the Bank of Spain, for instance, Spain will need 25 million immigrants by 2053 – three times the current rate of immigration – to keep the pension system solvent.

For these reasons, the Spanish government has resisted the trends in the rest of Europe to restrict immigration. In 2023, Spain had net external migration (immigrants arriving) of 1.32%, or 642,000 people.

That’s all well and good but all of those people arriving need quality places to live – and Spain isn’t building enough of them. Last year, the number of new households in Spain grew by 360,000. That is expected to ease slightly to 355,349 in 2025-2026, and then 337,864 in 2026-2027.

The number of new houses being built is growing for the first time really since the bottom of the banking crisis in 2014-2015. According to a study by Caixa Bank, this trend will continue and even gather pace.

“…we have raised our forecast for new construction permits from 125,000 to 135,000 in 2025, after they gained traction in 2024 (+16.5% year-on-year in January-October of 2024, reaching around 125,000 permits in the trailing 12 months).”

This is good news but is nowhere near enough. The result is that the deficit in housing supply will continue to grow in the coming years. Yet no one is willing to seriously work to solve the problem because it is costly in both political and economic terms.

The position of the far right is that Spain needs to end immigration and repatriate those who have arrived. But that is impossible and would lead to economic and social collapse, from public pensions to the healthcare system to the overall economy.

That means addressing the housing crisis head on – but is anyone doing that?

New Housing Law

The new housing law was promoted as a solution to the current crisis. It gave tenants new rights, reduced the ability of landlords to raise prices and offered incentives to landlords to rent long term and hold the line on rent increases. There’s also direct aid to young home buyers (under 35-years)

On the other side, it also provided repressive measures to try and shift the rental market. There were reforms to discourage and regulate tourist rentals, for instance. And removing and penalizing home occupations (okupas) is now easier and quicker. Financial pressure will also be applied to large landlords who have empty properties, imposing significant property tax increases.

However, it seems like nobody is happy with the current approach. The demonstrations in early April made it clear that a lot of people think the current approach is too timid. On the other side, business and landlord groups think that the law infringes upon landlord rights and market mechanisms that would reduce the problems.

Some of the immediate effects are becoming clear. Others will take time to unfold, such as the impact of changes to tourist rental laws or the house purchase grants for young people.

In the context of rental prices rising at 3x the rate of inflation – or more – the impact looks to be to push landlords into the medium-term rental market.

According to a study by real estate portal Idealista, the number of listings for long term rentals declined by 5% between 2023-2024. Those of seasonal rentals rose by 39%

There is no direct relationship between listings and the actual number of people living in long term rentals. Part of the disparity could reflect the fact that those in long term rental units are avoiding moving because they will face significant rent hikes.

However, there is an obvious incentive for landlords to rent for a season, rather than long term. They cannot raise rents on long term rentals by more than 3%. However, if they rent to students, at the end of the school year when they move out, they could raise the rent on an apartment by 10-15%.

Is this shift to seasonal rentals caused by the Housing Law? In a sense, yes. But the bigger issue remains that there’s not enough new housing being built to meet demand – both for purchase or rental. That is creating incentives that distort the housing market away from meeting the needs of Spaniards.

However, that doesn’t mean that there’s nothing that can be done. There are interesting housing reforms that we can look at that take as their principle stabilizing the landlord-tenant relationship.

In Scotland, for instance, they passed a law in 2016 that did just this. It laid out the 18 specific conditions under which a landlord could have a tenant removed. It also eliminated fixed rental periods entirely and provided a standardized contract for all landlords/tenants.

In addition, they added the role of rent guarantor. A landlord who has concern about the creditworthiness of a potential tenant – such as a young person seeking to rent their first apartment, or a low income family – can insist upon a rent guarantor.

A rent guarantor is a person, or company, that guarantees that if the tenant defaults, the landlord will not lose rental income. This creates great incentive for landlords to “take a chance” on renting to vulnerable and “high-risk” tenants.

Spain is looking towards a state-backed version of this, known as aval público. It will have stringent conditions and require consent of both parties. It won’t eliminate the deeper structural causes of high rents and lack of rental housing.

But the aval público will at least overcome one major concern of landlords when it comes to long term rentals. And making it a public service, rather than private, makes it more accessible to the most vulnerable. The vulnerable are the least likely to have access to someone with a high credit rating.

It is important to see the good and the bad in the current situation. And also to keep our eyes on the fundamental problem of a lack of supply. Until that is fixed, everything else will be just delaying the day of reckoning.

By Adam Neale | Property News | May 22nd, 2025

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