Spain announces rental tax incentives

Spain’s government announced various measures aimed at alleviating the country’s housing crisis last month, chief among them being 100% tax credit on profits for landlords who renew rental contracts without increasing the rent.

The Housing Law of 2023 had previously specified a 50% tax credit, but it is hoped that the new measure will encourage more property owners to continue long term rentals.

Spanish PM Pedro Sánchez explained “This way, everyone wins. Tenants win because they can stay in their homes without additional costs or price increases. Landlords also win because they don’t have to find other tenants and therefore don’t have to give up their income. And society as a whole also wins because we are fulfilling our responsibility to use public resources for the wellbeing of the people.”

Around 600,000 rental contracts are expected to expire this year, and the measure will act as an incentive for landlords to renew them without the soaring rent increases that have been seen throughout the country.

Estate agents have welcomed the measure, but claim that, while it may keep many rentals operative, it will not help to increase the supply of rental accommodation. José María Alfaro, president of the Federation of Real Estate Associations, told El País that this would require strengthening the legal security of landlords.

“The real impossibility of recovering the property in case of non-payment when the tenant is declared vulnerable, coupled with the collapse of the courts and eviction proceedings that drag on for months or years, is currently the main obstacle preventing thousands of landlords from putting their properties on the rental market,” Alfaro commented.

The measure has also been criticised by tenants’ associations. Valeria Racu, spokesperson for the Madrid Tenants’ Union commented “Rents are at record highs, and Pedro Sánchez’s solution is to give landlords tax breaks. While we spend 70% of our salaries on housing, they receive 100% tax breaks. The government wants to turn renting into a tax haven for landlords.”

Meanwhile, the influential consumers’ group FACUA-Consumers in Action, has called for a rent freeze to be imposed by law, similar to the measure introduced during the Covid pandemic.

The government’s measures also include proposals to clamp down on fraud in seasonal rentals, for example, the use of regularly renewed eleven-month contracts that deny the tenant rights that would apply to a longer 12-month term. The measures are expected to pass in coming weeks, although they may be subject to amendments in order to win approval.