IEE: Recent housing measures are undermining the right to private property.

The Institute of Economic Research (IER) has analyzed the current state of property rights in Spain and the impact of measures taken by the government and some autonomous communities in the housing sector. The findings of the study are unequivocal: this constitutional right is in crisis and at risk of further deterioration. As part of its work, the IER analyzed the results of the latest International Property Rights Index (IPRI), prepared by the Property Rights Alliance, which characterizes Spain's situation as "disappointing." In this index, our country ranks 26th out of 37 states, with a score above the OECD average (8.3 points) and the average value for European countries in the Organization for Economic Cooperation and Development (6.8 points). Compared to Finland, which tops this index, Spain's result is 28.5 percentage points lower. Countries such as the USA, Canada, Germany, France, Australia, Japan, among others, as well as Iceland, Estonia, Israel, the Czech Republic, Portugal, Chile, and South Korea, are ranked above Spain.

Right to property“It is one of the main pillars of society, economic activity, and entrepreneurship. There is a direct correlation between the provision of this right and the level of investments or startups in the country, as well as the level of social welfare. Spain is facing a structural problem with insufficient provision and protection of property rights. This is one of the reforms that is awaited,” says Gregorio Isquierdo, the director general of the Institute of Economic Research.

Nevertheless, the IEI believes that the measures taken by the central government and some autonomous regions in the housing sector recently, such as:

• suspension of evictions,
• arbitrariness with the occupation of housing,
• temporary expropriation of vacant apartments,
• imposing fines on large owners,
• Persistent calls from "Podemos" for rent price control

They only exacerbate existing problems and worsen the conditions of private property.

The dangers of rent control

At the moment when the government is discussing rent control in high-demand areas as part of the upcoming Housing Law, the CEO of IEI claims that the "Podemos" proposal to introduce a rent cap is "the wrong, counterproductive policy that leads to a decrease in the supply of affordable apartments." This is due to both the freeze on new construction projects and the reduction of the existing housing stock, resulting in owners stopping their investments in improving their properties.

"Empirical experience shows that this not only leads to distortions in tense areas but also negatively affects other parts of the city, as demand begins to shift to other neighborhoods. It also limits geographical mobility, given that knowledge of the fact that mobility is extremely important for youth employment today," warns Isquierdo. He also reminded that organizations such as the International Monetary Fund (IMF) and the Bank of Spain have opposed the introduction of rent price restrictions in the free market.

Instead, he supports the idea of introducingtax incentivesFor landlords (both private and professional), this will help maintain an attractive yield. This proposal aligns with recent initiatives from the Socialist Party through the Ministry of Transport, Mobility, and Urban Agenda (Mitma), which includes various tax benefits, including a deduction of up to 90% of personal income tax for owners who reduce rent by 10% in high-demand areas.

Although the initiative was positively received in the real estate market, the "Podemos" Pact and ERC urged the government to implement it.price restrictionIn the legislation, it was warned that if the ceilings are not installed, it will be necessary to look for other partners for the management.

Moratorium on evictions and protection of occupiers

The CEO of IEI believes that the suspension of evictions until the state of emergency is over and the willingness to overlook illegal occupation of housing create "harm to legal security" and lead to "increased risks and costs for owners, which ultimately translates to a lower supply and higher rental prices." He emphasizes that "these measures encourage a culture of non-compliance, and this is extremely harmful when it becomes widespread."

The study also mentions that "the seriousness of this measure lies in the fact that it leads to a certain legitimization or social and legal tolerance of housing occupation, which violates legal security and private property, creating a 'call effect' and increasing cases of non-payment in an already high level of debt, as well as contributing to the growth of criminal groups."

Moreover, one of the most direct consequences will be a restriction in rental supply, especially for the most vulnerable groups of the population, as both owners and financial institutions will demand additional guarantees that these groups will not be able to provide. As a result, preference will be given to more reliable tenants in light of the risks associated with actions supported by these measures.

Expropriation of vacant apartments from large owners

Another measure criticized by the IEE was the Balearic Islands government's decision to temporarily expropriate vacant apartments from large real estate investors. According to the IEE, this measure also threatens legal security and creates "significant obstacles to new investments, leading to a serious loss of trust in the real estate market." In its report, this initiative is characterized as "unsuccessful and more focused on effect than on real efficiency, as it is overly complex, ineffective, and infringes on property rights, introducing distortions in the housing market that only exacerbate existing problems."

“The essence of property rights is incompatible with the forced division of the use and benefits derived from an asset against the wishes and will of its rightful owner,” emphasizes Isquierdo.

In conclusion, the IEI also opposes imposing fines on large housing tenants, as this acts as a barrier to the professionalization of the rental market and could be unconstitutional, similar to the Wealth Tax - a tax that only exists in Spain.

Liberalization of lease agreements

In addition to calls for greater legal clarity and security, strengthening private property rights, and providing incentives to increase the supply of rental apartments, the institution also advocates forliberalization of rental termsThe changes to the Urban Lease Law (LAU) in 2019 extended the contract terms, setting five years for private owners and seven years for professionals.

Nevertheless, the IEI believes that such long terms may hinder the emergence of more properties on the market, as many owners are unsure whether they will be able to use their apartments over such a long period and, therefore, decide not to rent them out. Therefore, the institute supports the freedom of the parties to agree on the rental term.