It is the new headache for the real estate market and for many pockets. Rent has accumulated growth of 49% since 2013 in Catalonia. A dizzying pace that has led to talk of a new bubble in the brick sector, and especially in Barcelona, where living on rent has become prohibitive for many families. But what are the reasons that have led us here? Is it a purely speculative problem? When will the rental price hit its ceiling? Or can regulating prices be the solution? These are some of the questions that hover over a market that seems to want to break all records.
But it has not always been this way. In fact, one does not have to go far to find negative evolutions in rents. With the outbreak of the crisis, rental prices, like purchase prices, began to fall. Thus, between 2008 and 2014, most tenants who renegotiated contracts were able to obtain significant reductions, even in large cities like Barcelona. According to data from the Generalitat, from the beginning of the crisis until 2013, an average decrease of 15% in rents was recorded in the Catalan capital and up to 20% in Catalonia as a whole.
From 2014 and 2015, and especially from 2016, the situation takes a turn. Furthermore, unlike what happens with the purchase market, where increases are timid and not very widespread, in the case of rent, the turning point is abrupt and in Barcelona, in a few months, prices skyrocket. If you look at the following tables from a report by the real estate portal Fotocasa you can see in detail the change in rents.
The causes that explain this behavior are diverse and much more complex than a simple speculative movement or the impact of tourist rental apartments, as has sometimes been suggested.
Let's go by parts. Let's start with what has moved the most in the equation: demand. This has grown strongly in recent years. On the one hand, because many of the people who previously went directly to the purchase market have now been excluded due to the impossibility of accessing a mortgage. Demand has also grown, in the case of Barcelona, because the city has become a pole of attraction for new foreign residents. Entrepreneurs who come interested in the startup ecosystem, students attracted by its universities, foreigners looking for good weather and quality of life, etc. This group is also important, and we must add the wave of tourists who come to the Catalan capital and prefer to stay in an apartment rather than in a hotel.
The impact of this tourism has often been presented as an element. The thesis is simple: owners get more returns from tourist rentals for days or weeks than with a standard contract. In addition, the risk of encountering a defaulting tenant is also minimized with tourists. In any case, and beyond the impact on high-concentration neighborhoods, both experts and most studies indicate that this phenomenon does not serve as the sole explanation. The Barcelona City Council itself – which has spearheaded the fight to stop new licenses – endorsed a study commissioned by the tourist apartment employers' association Apartur, and presented last summer. It stated that the number of illegal tourist-use apartments had been reduced by 21% in the last year while rental prices continued to rise unchecked.
Now let's look at the supply. The main problem here is that the figures are insufficient to satisfy a demand that, as we have seen, has not stopped growing. And this despite the fact that some studies show that close to 40% of the sales made in the last year in the city of Barcelona were investment purchases destined for the rental market. It is a more than attractive bet if one takes into account that the scenario of low interest rates has made having money in the bank a bad business and, on the other hand, the profitability of renting in the Barcelona area can exceed 8%. That is why many investors and savers have seen the opportunity to get some juice out of their money with the rental market. In any case, this movement has been insufficient to generate supply.
Nor has the effort, or in this case the lack of effort, for many years, of administrations to increase the stock of rental housing been enough. For too long these administrations focused on building protected housing for sale, and when some saw the need to make a change towards rental, the crisis left public coffers without money. In recent years, the formula of reaching agreements with banks for them to cede empty homes for affordable rent has helped to gain a little more supply, but the flats that now remain in the banks' backpack are located in towns where there is no demand.
Beyond the evident imbalance between supply and demand, the rental market has also been strongly affected by the impact of the reform approved by the Popular Party in 2013, which had as its main element the reduction of the duration of contracts from five to three years, as well as the elimination of the two-year extension. The first renewals of that first series of 3-year contracts coincided precisely with a rising market, and added extra pressure.
Another problem in the rental market in Catalonia and Barcelona, which differentiates it from what happens in other large European cities, is the profile of ownership. While in cities like Paris or Berlin most of the rental stock is in the hands of companies and professional managers, here ownership remains very atomized and the bulk of the flats are in the hands of individuals. This also works against price containment and in favor of more speculative attitudes.
The sum of all these elements has meant that today evictions associated with rent already exceed those for mortgage defaults. The inability to afford current rents for a large part of the population has become one of the main social problems. That is why politicians have also begun to introduce the price of rent among their priorities on the agenda. One of the first to try to solve it was the Catalan government. The previous executive pushed through, with delay and less intensity than originally proposed, a reference price index for municipalities with higher demand. The measure, which like many others has been relegated to a very secondary role given the political situation, aimed to stop exorbitant price increases by giving greater visibility and transparency to the market. But a year after its implementation, the effect has been rather null. For its part, the Congress of Deputies approved a few days ago an initiative to facilitate the departure of tenants who do not pay when it comes to privately owned flats. This seeks to offer greater legal certainty and also encourage owners to put their flats on the rental market. It is still, however, too early to know if this will have any truly positive effect on the supply.
What Congress has rejected is extending contracts again to five years, one of the most demanded measures not only by tenants but by a large part of the professional sector, as an element to generate greater stability in the market.
Some experts believe that rent has already peaked and that in the coming months its growth will cool down because basically demand can no longer bear more increases. This 2018 will be key to seeing the evolution. For now, however, the picture of the sector continues to be that of tenants packing their bags due to the impossibility of facing rent increases.