One month has passed since the entry into force of the Royal Decree-Law that limits price increases to 2%, decoupling it from the inflation rate until June 30. According to a study conducted by idealista, the annual renewal of the lease for a typical two-bedroom apartment in Spain will now be around 700 euros/month on average, compared to the almost 750 euros/m2 that the increase linked to inflation would have entailed, after knowing the latest CPI data for April, with a year-on-year rate of 8.4%.
Just these days has been validated in the Congress of Deputies the National Response Plan to respond to the economic and social consequences of the war in Ukraine, which has been in force since March 30. The Government of Pedro Sánchez has secured the necessary votes to move it forward at the last moment, in the face of the crisis generated by the alleged espionage of people linked to the Catalan independence movement.
Among the extraordinary measures applied, in terms of housing, it is already in force that those rental contracts that touch the annual review they will have to limit the rise in rent by applying the Competitiveness Guarantee Index (IGC)which is currently at 2%, and not the Consumer Price Index (CPI), which is what the Urban Leasing Law (LAU) establishes in general.
This 2% rise will be maintained for another month, since the last IGC published on April 22 by the National Institute of Statistics (INE) closed with a variation of 2.75% corresponding to the month of February.
As explained by the INE “when the rate of variation of this index exceeds the medium-term objective of annual inflation of the European Central Bank (2%), this value will be taken as a reference”. The same would happen with the minimums: if the index falls below 0%, this value will be taken as a reference, which would be equivalent to the application of the no-review rule. Therefore, the contract revision would always move between 0% and 2%.
With this situation, the tenants who have to review their rent during the next month of May will go on to pay an average rent of 704 euros per month at the national level, which means 14 euros more per month compared to a year ago (that is, 166 euros more per year), according to the study carried out by idealista, the real estate marketplace in southern Europetaking as a reference a lease of a two-bedroom flat-type dwelling.
In the big cities the rise will be more noticeable, within the limitation of 2%. In Barcelona, rents will increase about 17 euros more per month, to place the updated rent at 867 euros/month on average, so they will exceed 200 euros more per year. In MadridMeanwhile, rents will remain on average at 816 euros/month, after an increase of 16 euros per month, less than 200 euros per year (exactly 192 euros/year).
But it is San Sebastián where rents will rise the most. Applying the general 2% rise in the renewal of contracts, the average lease for a two-bedroom apartment now rises to 893 euros/month on average. They are 18 euros more per month, which means an annual increase of 210 euros.
Bilbao joins the top three cities that will record annual rent increases of more than 200 euros, maintaining the same prices as Barcelona, with an updated rent of 867 euros/month on average, after applying an increase of 17 euros more per month .
On the contrary, in cities like Ciudad Real, Cuenca, Cáceres, Jaén or Palencia the rise in rents will barely be noticeable between 7 and 8 euros more per month, so the annual increase will be less than 100 euros per year for tenants who have to renew their rent, and their new leases will go to between 357 euros/ month and 408 euros/month.
What would happen with the increase in income linked to current inflation?
The National Statistics Institute (INE) has published the advance data of the Consumer Price Index (CPI) corresponding to the month of April, which stands at a rate of 8.4%, which is 1.4 points less than the final inflation for March, which stood at 9.8%, its highest rate in almost 37 years. While waiting for the final inflation data for April, which will be known on May 13, we can calculate what the rise in rents would have entailed for the review of their contract during the next month.
At the national level, the average rent for a two-bedroom apartment would rise to 748 euros/month, after applying a rise of 58 euros per month with the update of the rent to 8.4% of inflation, which would mean almost 700 more year. This it would mean around 530 euros of difference between the current calculation (2% of the IGC) and the one that had been applied with the LAU (with inflation).
Again, in the renewal of rents in the large capitals is where the greatest increases would be applied, and where the main average contrasts would be appreciated. In San Sebastián, the average income would rise to 949 euros/month, after an increase of 74 euros per month. This means more than 880 euros per year, and a difference of around 670 euros with the current revaluation.
Donosti would be followed by Barcelona and Bilbao, both with a new rent updated with the current CPI in advance of 921 euros/month, which would mean almost 860 euros more per year after contract renewal (71 euros more per month). The difference would exceed 650 euros per year between both calculations.
Finally, in Madrid capital, the new rent would have been updated with this last known inflation by 67 euros more per month, and leave a new rent of around 870 euros/month. The renewal of the lease would exceed 800 euros per year. The contrast with the annual update of rents at 2% would be about 615 euros more per year, until the next review.
How the increase in rental income is being applied
The Rental Negotiating Agency (ANA) has verified how the vast majority of owners, nine out of 10, have applied the 2% increase when updating rents. Of the remaining 10% of landlords, half of them have agreed to higher increases with tenants, ranging from 2.5% to 7.6%, and the other half of owners decided not to apply any increase and leave the rent frozen. for rent.
“In many cases, these agreements had occurred previously, where the owners had already decided not to apply the entire CPI, but half, when the CPI was at values of 7.6% or 9.8%.” adds its CEO, Jose Ramon Lefty.
The ANA anticipates that this limit on rent updates may have greater effects on the rental market with increases in current rental prices, to compensate for the limitation of future updates, or that, with the loss of purchasing power on the part of landlords, they begin to dedicate fewer resources for proper maintenance of their rental homes. It also warns of a possible transfer of the stock from rental to sale, given the obstacles and insecurities of the rental market.
“If this extraordinary measure is extended over time, as many others decreed by the Government during the pandemic have already been extended, it will become a subtle way of intervening in rental prices,” added Zurdo.
