The affordability of rental housing in Spain is under pressure. Local residents have a hard time finding suitable and affordable rental housing. Think of cities like Valencia, Alicante, Barcelona, but also the islands like Tenerife. In this article, you will find our opinion on the impact of the Spanish rental market on foreign investors.
Consequence of new housing law: less supply in rental market
In May 2023, the Spanish national government introduced a new law that largely regulates the rental market and rents. Local governments can designate zones where rents have risen abnormally. In these zones, ceilings on rents and restrictions on annual rent indexation apply. Lower costs may also be passed on to the tenant. Finally, it is more difficult to proceed to eviction and the tenant has more options to extend the tenancy.
This legislation has the effect of - what is already visible - That rental supply is falling. Fewer owners are inclined to rent out their property. Affordable housing will not improve for locals as, with the drop in supply, rents are expected to rise even more. As a result, we see a shift towards co-housing and co-living among the local (mainly younger) population.
Further tightening for holiday rentals
More relevant for foreigners investing in Spain are the effects of the ordinary rental market on holiday rentals. The increase in the number of flats and houses for holiday rentals is causing scarcity in the ordinary rental market. Especially in tourist areas, such as Barcelona, Valencia and the islands, this is a big problem for locals. As a result, we have already seen a tightening of legislation for holiday rentals in recent years. Consider, for example, the possibility of the Co-owners' association to allow holiday rentals prohibit or on the power of Municipalities in Valenciana autonomous region to restrict holiday rentals.
Our expectation is that holiday rentals will be further discouraged in the various autonomous regions. For instance, initiatives are under way in the Canary Islands to review existing regulations. And in Mallorca (Balearic Islands), rental licences will no longer be granted until at least 2026. Also in the Comunidad Valenciana (Costa Blanca), more municipalities will act more strictly.
In this way, the autonomous regions will, in our view, try to create more supply in the rental market by further restricting and regulating holiday rentals. The hope is that more rental properties will then return to the market. If you wish to buy property in Spain to rent out via holiday lets, selecting the region based on legislation will become increasingly important.
More emigrations
The Spanish national government has made it more attractive for expats to live and work in Spain. For example, consider the visa for digital nomads ('working from home' in Spain) with the corresponding tax incentives. Among our Belgian and Dutch clients, we also see a trend towards more 'Working from home' in Spain. This type of tenant usually has a higher budget and different requirements than the average Spaniard, so they rent more luxurious property. This is the property typically bought by foreign owners.
In addition, we see more retirees who first rent something for a year before buying a suitable property in Spain. They usually rent in the same regions where second-stayers are also located.
Conclusion: trends for the Spanish rental market in 2024
If you wish to invest in Spanish property to rent out, take into account the tightening of holiday rental legislation. Currently, in certain regions, you already have no guarantee of obtaining a rental licence at the time of your purchase and this trend will continue in the near future. If you already own property in Spain, and are considering holiday rentals, it might be better to apply for a rental licence already.
On the other hand, we see opportunities for rentals to expats and second-home residents. For these tenants, you do not need to apply for a rental licence (but the tenant may be protected by the strict residential rental regime) and more often rent for the medium term.
Review our webinar on trends in holiday rental legislation in Spain.
