Published: 20th October 2009
Spain: Bank governor hits out at “ridiculous” rental laws
Miguel Angel Fernadez Ordonez, Governor of the Bank of Spain has told the Spanish press that Spain’s “ridiculous” rental laws are having a negative effect on the housing market.
His comments were made in response to a report by a group of economists from Harvard, The LSE and the IESE Business School which identifies the dysfunctional rental market as lying at the heart of the country’s housing market problems.
Spanish law currently makes it difficult for landlords and rental clients to agree conditions that might suit both parties. “It’s ridiculous that the law prevents landlords from renting their properties for less than 5 years, even if tenants agree,” he told the Spanish press.
Just 13% of Spanish households live in rented accommodation, compared to more than 40% in Germany and France, and around 30% in the UK. The report blames Spain’s regulatory framework and calls for immediate changes to liberalise the market.
The laws result in low labour mobility, reduced access to housing, high levels of unsatisfied demand for housing (especially amongst the young, as 65% of Spaniards between 25-29 live at home with parents, compared to 20% in France, Holland and the UK), and a glut of empty homes, estimated to be around 3 million.
To report urges 4 urgent steps to be taken by the Spanish government:
- Liberalise rental contracts and give landlords better legal protection.
- Remove all fiscal incentives that encourage buying over renting.
- Stop selling social housing and offer it for rent instead.
- Reduce or do away with taxes on property sales such as VAT and transfer tax.
The report says the above steps should help mop up Spain’s housing glut, improve access to housing, increase the incomes of small landlords, reduce the impact of the economic crisis on household budgets, and help reduce unemployment.
These actions could help re-balance both the domestic and international property markets in Spain. It remains to be seen what action, if any, the government will take.
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User Comments
I have been of the opinion for years that VAT or transfer tax on property purchase shoud be a least halved, 7% is ridiculous. Another way to stimulate sales would also to collect this Tax at a reasonable rate is when the property is SOLD by the purchaser.
Hence reducing the outragous purchase costs needed at the time of buying.
At present the reality for anybody wishing to buy is that they need to find a 20% deposit, and about 11% costs....total of around 31%.....crazy!
G Peters,
The Property Shop