New Housing Act 2023 in Spain: understand the changes

Spain’s 2023 Housing Act (Ley por el Derecho a la Vivienda), in force since 26 May 2023, introduces sweeping changes for landlords and tenants across the country. The legislation caps annual rent increases at 2% in 2023 and 3% in 2024, defines ‘strained zones’, lowers large landlord thresholds to five properties in high-demand areas, shifts estate agency fees onto owners, and provides 50% to 90% income tax reductions for affordable rentals.

What is the new Housing Act?

In an attempt to control rental prices across the country and reduce the number of evictions, Spain has passed its new Housing Act. It redefines aspects of the relationship between landlords and tenants, setting limits on rent increases and tax benefits for owners who add more properties to the rental market.

This is a reaction to the escalating prices in Spain, which have risen significantly, mainly due to a lack of stock. As CASAFARI pointed out in our market report in April 2023, Madrid reached an average monthly asking rent of €17 per square metre, surpassed by Barcelona with an average asking rent of €22 per square metre.

Strained zones and definitions of large and small landlords

To understand the changes brought about by the 2023 Housing Act alongside our guide to buying property in Spain, it is important to understand the concept of strained zones and what constitutes a large or small landlord.

The strained zones are those where rents and asking prices have risen more dramatically. They are defined by local authorities and, in order to obtain this label:

• the sum of the average cost of rent (or mortgage) plus costs of utilities should be higher than 30% of the average household income;

• the rent (or asking price for properties for sale) should have risen by at least 3% above the Consumer Price Index over the previous 5 years.

Once designated, an area is considered a strained zone for three years, and this label can be renewed depending on housing market conditions.

And when it comes to large and small landlords, there are also new definitions that will affect the rental policies applied.

A large landlord is an individual or company that owns more than ten urban residential units or a built-up area of more than 1500m2 for residential purposes (excluding garages and storage areas). But, if we’re talking about a strained zone, the limit is reduced to five properties.

Meanwhile, small landlords are those with fewer than 5 residential units.

Rental increases, new agreements and renewals

1. Rules for increases in existing agreements

The first thing to know about rent increases is that they are no longer linked to the Consumer Price Index. They are now limited to 2% in 2023 and 3% in 2024, with new rules for future years.

In cases where the owner is not a large landlord, the increase can be agreed between the tenant and the owner. And if no agreement is reached, the increase cannot exceed 3% of the current rent.

The same logic applies to all other agreements: they can’t override the new Housing Act.

2. Rules for new agreements

The Housing Act of 2023 establishes a cap for all new lease agreements for properties located in strained zones. The rent cannot exceed the value charged in the last lease for the same property (taking into account the last 5 years), plus the update percentage for the current year (2% for 2023, 3% for 2024).

It’s also important to note that the landlord cannot pass on to the tenant the obligation to pay any charges or expenses that were not included in the previous tenancy agreement.

Exceptionally, small landlords will be able to increase the rent by up to 10% in relation to the value last charged if, in the two years prior to the signing of the contract, the property:

• was renovated;
• has undergone improvements resulting in a 30% saving in non-renewable energy;
• has undergone accessibility improvements.

If the new contract is for 10 years or more, the 10% increase also applies.

Meanwhile, large landlords must comply with the price containment index.

Finally, properties that have never been put on the rental market must comply with the price limits set by each Autonomous Community for the first rental contract.

3. Rules for contract extension

If the landlord or tenant doesn’t give notice of the end of the contract (4 months for the owner, 2 months for the tenant), the contract is automatically renewed for one year, which can happen up to three times. If the property is located in an urban area, it’s compulsory for the landlord to accept the tenant’s request to extend the lease.

The exception is when the owner needs the property for himself or his first-degree relatives to live in, or when the couple is divorcing and has to divide the couple’s assets. In both cases, there are deadlines and rules for suspending the lease.

Tax benefits and costs to the owner

To encourage owners to put their properties on the rental market, the Housing Act provides incentives for small landlords who rent properties in strained zones at affordable prices. Landlords can receive tax relief on their net rental income at the following percentages:

• 50% reduction for new agreements;

• 60% reduction if the property has been renovated in the two years prior to signing the contract;

• 70% reduction if the property is rented to young people between the ages of 18 and 35 or as part of subsidised rental programmes;

• 90% reduction for new contracts that charge at least 5% less rent than the previous contract.

These are the main options available to owners who wish to participate in solving the housing problem, but there are a few others in the Housing Act.

As far as obligations are concerned, it’s important to understand that from now on, owners will be responsible for paying for property management services and contract fees. They will not be allowed to increase the rent to cover other costs, such as rubbish collection or community fees, and they will not be allowed to pass on to the tenant the obligation to pay the estate agent’s fees.

Finally, those who own more than four properties in the same municipality and who leave dwellings empty for more than two years can be charged an increase of up to 150% of the Impuesto sobre Bienes Inmuebles (IBI) by the local council. In other words, instead of keeping the property empty, the state wants to encourage owners to become landlords and add another property to the housing market.

Do you still have doubts about the new Housing Act of Spain? You can check all the regulations in the Official Bulletin of Spain. And, of course, count on CASAFARI Area Insights and our property valuation and market study tools to see how this new set of rules is affecting the property market in the country.

Frequently asked questions

How is a strained zone defined under Spain’s 2023 Housing Act?

A strained zone is designated by local authorities for three renewable years where housing costs exceed specific economic thresholds. An area qualifies if average rent or mortgage payments plus utilities exceed 30% of average household income. Alternatively, it qualifies if asking rents or sale asking prices have risen by at least 3% above the Consumer Price Index over the previous five years.

Who is considered a large landlord in Spain?

Under Spain’s 2023 Housing Act, a large landlord (gran tenedor) is an individual or company owning more than ten urban residential properties or over 1,500 square metres of residential built-up area, excluding garages and storage rooms. In designated strained zones, local authorities can lower this threshold to owners of five or more residential properties. Landlords with fewer properties than these thresholds are classified as small landlords.

What are the caps on rent increases under the 2023 Spanish Housing Act?

The legislation decoupled annual rent updates from the Consumer Price Index, capping them at 2% in 2023 and 3% in 2024. For new contracts in strained zones, rent cannot exceed the previous lease rate plus the applicable annual update percentage. Small landlords may increase new lease rates by up to 10% under specific exceptions, such as recent property renovations or 10-year lease agreements.

What tax incentives do small landlords receive in strained zones?

Small landlords who rent out properties in designated strained zones at affordable prices receive a baseline 50% income tax reduction on net rental income. This tax relief increases to 60% for recently renovated properties and 70% when leasing to tenants aged 18 to 35 or through subsidised programmes. Landlords who reduce rent by at least 5% compared to the previous contract can claim a 90% tax reduction.

Who pays estate agency fees and property management costs under Spain’s Housing Act?

Under the 2023 Housing Act, property owners are strictly required to pay all estate agency fees, property management costs, and contract formalisation fees. Landlords cannot pass these operational costs on to tenants, nor can they introduce new fees such as community charges or rubbish collection if they were not part of the previous lease agreement.