The new text that will shape the future housing law promises to revolutionize the rental market in Spain. The updated wording of the regulations, which relaxes the requirements for regional and local governments to be able to declare a census zone as a stressed market area, opens the door for more than 80% of households in certain provinces to be subject to the limitation of rental prices. In this group would be regions such as the Balearic Islands or Malaga, with 94% of the houses located in hot areas, as well as Madrid (89%), Cádiz (83%) and Barcelona (80%). In total, more than 60% of the Spanish population lives in areas likely to be limited.

The figures are offered by the latest analysis by the real estate consultancy Atlas Real Estate Analytics. According to the calculations, the categorization of stressed area could affect up to 20.83% of the total census zones or districts in Spanish territory, a lower figure that, however, is equivalent to 61.09% of all households in the country. Only in three places –Ceuta, Palencia and Valladolid– the percentage of houses in red zones is below 10%. In other places with relatively high prices, such as the Canary Islands, the Basque Country and several Andalusian and Valencian provinces, the proportion of households likely to be considered stressed exceeds 50% by far.

The paradigm shift is explained by the new wording of the text, agreed last week between the Government and ERC and Bildu, its usual partners in Congress. Initially, according to the initial draft that served as the basis for the negotiations, it was necessary for two requirements to be met in parallel for an administration to be able to declare an area as stressed. This design delimited the margin of autonomies and governments to make the decision.

Now, with the new text, the declaration can be made effective when only one of the two conditions established by law is met: that the financial effort of the sale or rental exceeds 30% of the average income in the area or that the price of housing in the five years prior to the declaration has experienced a percentage of accumulated growth at least three percentage points higher than the regional CPI.

The fact that the factor of the simultaneity of the two requirements has disappeared is what makes it possible for more than half of the country’s population to live in areas likely to be considered as stressed, a regulatory change that has great significance.

Specifically, if an administration decides to classify a residential area as hot, be it a city, a census tract or a street, a series of regulatory measures come into effect. The main –and most controversial– is the limitation of all rental prices. In other words, through different formulas, the rents of properties belonging to large and small landlords are met, regardless of whether the home has entered the market for the first time or if there was already a contract previously.

For all these reasons, explains Alejandro Bermúdez, co-founder and CEO of Atlas Real Estate Analytics, when applying the legislation “it is vital to understand how it affects all the parties involved, this is both households and investors, in the case of renting”, he details. Declaring an area as stressed has implications for investors’ decisions, “since forecasts of price increases have great weight when analyzing profitability in financial models,” he adds.

The declaration of a stressed area also puts another series of far-reaching measures into operation. For example, the administrations will be able to lower the threshold of owned properties that are needed to be considered a large holder, reducing it from ten to five houses. The change in model is important because the formulas to cap rental income are different depending on whether the landlord is a small or large owner.

The declaration of a hot zone also allows landlords with physical personality to access a series of IRPF bonuses, with a maximum deduction of 90% on rental income if they lower the price by 5% compared to the previous contract.

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