The social-communist government in Spain yesterday announced Spain's 2021 budget with great formality. We saw our Beloved leader, Communist vice president Mr. Iglesias, wearing a suit for the first time, marking the solemnity of this occasion. The annual budget law of Spain is by far the most important legislation to pass every year and we must pay close attention to see where the agenda of the governing government is headed next year.Promotions
I could write about a dozen articles on the pernicious effects of what has been agreed and why, but in the short post I only want to focus on the rental control law announced today. Following on from the one already approved by the Generalitat in Catalonia earlier in this year, United Podemos (Communist Party of Spain) has pushed its agenda to extend the shadow of that control throughout Spain. His firm political ally, PSOE, has finally passed and will pass the Housing Act in 2021. The final law must still be made clear, but it is now a matter of certainty, at least a few months before it is enacted.
I already predicted this in previous articles, as Spain's Communist Party has been reluctant to regulate vacation rentals, because they disdain them completely (and tourism, or so it would seem). I shall not go into the matter of how this is a frontal assault on property rights enshrined in our 1978 constitution (read unconstitutional) and how these pricing control measures have been repeatedly tested and tested in other large cities (Berlin, Paris) and failed. In short, though I understand where they come from and how their stated goal is (to reduce rental prices), in my humble opinion, this is a very bad measure and will create a few nasty problems with few or no real benefits.
The Agencia Negociadora del Alquiler (private company) has collected seven negative effects on the Spanish leasing market:
Increased rental agreements between landlords and tenants books (not declaring them).
Sharp rise in rental prices and market anomalies (because landlords would pull out en masse from renting, drastically reducing the available offer). This is ironic because the whole point of passing this new law in 2021 would be to reduce and not increase rental prices!
Waste of property
End of the buy-in
Law insecurity introduction (which deters investors)
Elimination of tax-friendly SOCIMI
Creation of 'guetos' artificially in large cities with long waiting lists
At a time when rentals are on their own because of the continuing financial strikes on Covid-19 and all the associated quarantine, the introduction of this new measure is really like flying a dead horse, as highlighted in previous reports. Central rental planning is bound to produce serious distortions on the market, such as the paradox of setting a fixed price at current value, when in fact the rental price could well fall further in the future. Paradoxically, the government could actually set higher prices today, in three months time, than a property could get on the actual market.
I care about throwing into my own a few more adverse effects:
Due to Brexit and the elimination of landlord tax relief for UK landowners, a number of companies specializing in home rental care will now fold.
In a stagnating selling market, struggling real estate agents rely heavily on rents to meet ends because there are almost no property sales. If you mess with rentals, they *really* will fight (read widespread closures).
Increased unemployment in a booming sector
A sharp decrease in offer as landlords will dictate what price our beloved government can rent, and stop renting altogether.
Enter enormous price distortions at new and old rent prices to create 'privileged' rentals
What happens to the rentals already signed?
What happens when contracts signed under this new law are found to be unconstitutional and abrogated?
I really don't like being forced to write such articles, but I firmly believe that people should be warned, and that this future misconceived legislation should be stopped in its right direction for the benefit of all of us who work in the property industry. There are millions of jobs at stake.
"The view of the government on the economy could be summarized in a few brief sentences. Regulate it if it keeps moving. And subsidize it if it stops moving." – Reagan's Ronald
Reagan (1911 – 2004). Ronald Wilson. US 40th President (1981-1989). The victory of the Cold War leading to the fall of the Berlin Wall and the collapse of the communist USSR, he contributed steadfastly. With clever and resolute political games, unwaveringly supported by strong political Allies like Margaret Thatcher, he ensured that western democratic values prevailed and prospered, probably averting the Third World War. Together with the greatest President of the USSR, Mikhail Gorbachev, he signed a START agreement to launch the denuclearization of the world's two largest nuclear superpowers to avoid nuclear Armageddon. A mediocre actor of cheesy wests became a great statesman. His steadfast ideals, which in 1981 nearly took his life, would ensure us all freedom, his endless legacy that we are eternally grateful for.