A few weeks ago we wrote the following about why there is so little supply of properties for sale on the market. Today it's time to write the same but this time it's about rentals so we've updated the first paragraph a bit and got into the weeds on why it's different below.
"The last few years have seen the stock of Spanish property available to buy or rent reduce dramatically and as a result prices have risen equally dramatically. Today we are going to look at why there are so few properties available in Spain concentrating just on RENTALS. (We wrote about SALES in the original post which you can see here). This is true not only in the most in demand areas but also in small towns and villages throughout the country even in the places known as "La España Vacia" (Empty Spain). Our post today examines the many reasons why breaking up is hard to do and why there is so little supply in the Spanish rental property market."
The rental market differs in one major way from the sales market, fear. One of the reasons there is so little supply responds to fear, we'll talk about that later. Most of the reasons are similar or exactly the same as for sales, more demand, less supply, more demand, less supply and so on and so on. Let's look at why.
Demand
As we have said before demand is high and continues to grow. Therefore there are more potential tenants ready to move into anything that comes onto the market. As someone looking for a rental you have to make a decision quickly and make yourself a good option for the owner as they respond to the demand by filtering potential tenants, more on this later. They will have a hundred enquiries for any rental property that is priced correctly and plenty of enquiries for even those that aren't. So demand plays a large part in the situation because without demand the number of properties on the market would grow of course, even if supply were to be reduced to a trickle. However, it is not the only factor in play.
Supply Issues
The opposite of demand is supply of course and the supply has been drying up for years, especially since Covid and the rise of remote working. Why pay a huge rental price for a shoebox in London, New York or Paris when you can reduce your outgoings while maintaining your income elsewhere and actually live in a decent sized place? This is even true of people relocating from Madrid and Barcelona to other places within Spain. This is not the only reason for this though, obviously an excess of demand means supply diminishes but the supply side problems come from many other factors not just "things rent immediately!" Let's look at the main reasons why the supply is falling.
Airbnb and Other Short Term Rentals
This is the biggie of course. People think they can "earn" more money by renting on Airbnb than by renting out long or medium term and they also think their property is "Safer" when rented out this way. They're wrong but that's what they think.
Despite the rise of cities placing restrictions on Airbnb the numbers of properties rented out on the platform keeps on growing and now they are trying to move into the medium term market too. The numbers of ground floor, previously commercial, units available is astounding compared with just a few years ago. These 25-40m2 units remain commercial and Airbnb rental is counted as a commercial enterprise so they get licences. However, people can generally not live there as they are not residential. In my opinion that's a bit mad.
The only way to counter the dominance of Airbnb and other platforms is firstly, regulation (But we'll see later why this may not work and has not worked) and secondly, taxation. Airbnb pay very little tax in the areas they operate (And help to destroy) and the owners were often paying no tax on the rentals as they weren't declaring the rentals (They generally do now as fines for illegal renting have risen considerably)
Medium Term Rentals
Medium term rentals are becoming more and more popular with owners as remote work and short term contracts for people working in areas become more common. They are also more popular because of government regulations as you will see below but let's look here at remote workers and others for example.
Medium term rentals have always been popular with seasonal workers, students and even government employees sent to an area to cover absences for an extended period. This may include teachers sent to a school for a couple of terms to cover maternity leave or illness or fruit pickers in an area for the harvest season. However remote workers and "digital nomads" often move around from country to country as their visas are limited to 90 days (The Schengen Visa) or for a school year (Usually September to June).
However, medium term rentals have now been supercharged by government regulation and this has affected the supply of long term rentals massively.
Government Regulations
The government is trying to improve the rental market by increasing the rights of tenants. A laudable effort in a country where tenants' rights were scarce to say the least but one probably doomed to failure because of Spain's love of the phrase "Hecha la ley, hecha la trampa". (As soon as the law is made, the way round it is made)
The government has made various new laws to try and help the rental market and all of them have actually reduced the supply. Firstly, they extended the time period a tenant could be in the property after the first year. This meant some owners took their properties off the market as they didn't want them to be tied up for five years (previously four). The government then said you can only raise the rental by the inflation rate. That's fine as it was previously the law but this was applied to all rentals and limited to 2% during the huge price rises post Covid. As rentals ended owners took the property off the market or moved into short or mid term rentals where controls were less.
However the biggest reduction came after the government said that estate agents cannot charge the tenant a fee for helping them to find a place to live. This only applied to long term rentals of one year plus four (The standard rental agreement) Therefore, suddenly all long term rentals advertised by agents became medium term rentals of 11 months and because owners say "I'm not paying you" many agents decided not to bother with rentals any more. Why work when legally you couldn't get paid by a tenant and wouldn't get paid by the owner.
In medium term rentals the agent could still charge a fee and also the new price is negotiated at the end of the 11 months with the tenant for the following 11 month period meaning the landlord can raise the rent as they want or get a new tenant in and effectively removing the rights of tenants (This suits the agent too as they can charge a fee again for finding another tenant) Not to emphasize it too much but landlords are generally greedy when they see others getting better returns and agents might also be greedy but more importantly, they have a business to run.
Because of this the government is intent on making another law which is likely to restrict supply even more. They want to make all medium term rental tenants have the same rights as a long term rentals in terms of rights of the tenancy and their potential to stay. It's all laudable but... hecha la ley, hecha la trampa!
If and when this happens expect supply to dry up even more.
The latest law came into force last month and forces all short and medium term rental properties to have licences and be registered in a central register. This caused a mass panic and caused many people to take their properties off the big portals. However it was later clarified that because the law was so badly worded that you only needed a licence if you advertised on a portal where online contracts and payments could be made... aka Airbnb, Booking.com etc... Nevertheless, this meant that over 100,000 properties all around Spain disappeared from Airbnb alone. They will trickle back on as they are still for rent, just elsewhere or in a different way in many cases. Others will have disappeared for good.
But... but... but... surely there will be a glut of properties coming onto the market both for rent long term and sale because of this right? Erm... no. Spanish owners prefer to keep their properties empty rather than having to "deal with" a long term tenant (meaning actually do any upkeep to the property to make it liveable). And in a rising market why sell? If your property is worth 300k today and is likely to go up by 10% in the next year you have "earnt" 30K without getting your hands dirty with tenants or actually doing anything.
Now regional governments are also trying to increase the rental supply. Various regions have doubled council tax rates for empty properties. So, what happens? Owners get a family member to register on the padrón at the property or just say ok and pay it as council tax rates are so low.
Family Feuds Again
A repeat of the paragraph from last month. "How can there be so few properties for rent when there are so many empty properties? A question often asked, especially in La España Vacia, but hardly ever adequately answered because there are so many factors. However, one of the main ones is the existence of families and the associated inheritances and most importantly, family feuds. An inheritance in Spain goes equally to the surviving partner (if applicable) and then the rest is shared equally among the kids."
Imagine getting that lot to agree to a rental where they all get a small amount every month and potential headaches. You've more chance of convincing them to sell the place and split the proceeds equally but as you read last month, that's difficult too.
Fear Of Okupas
Again a bit of a repeat but it affects the rental market too. In this case the owners aren't worried that you will view and then move in officially squatting, they are worried about you becoming an "Inquiokupa" someone who initially pays rent but then stops and they have to go to the courts to get you out. This takes a long time in Spain. Squatters (Okupas) are the big bogeymen of the Spanish property market. Disinformation is rife. This disinformation leads to people not advertising properties to rent online for fear of a property being identified and occupied. I know it's a mad fear but it exists. People don't want to leave a property empty and advertise that it is empty so they don't tell anyone it's for rent. That's mad but they do it.
Immigration
Just like last month, immigration is to blame here too as it adds to the demand. However there is also a little bit of xenophobia here too as Spanish owners are less likely to rent to foreigners as they are radicalised by disinformation and told that immigrants are the big thing they need to fear. It's not true of course. Most immigrants pay the rent first and everything else after as they want a safe place to live and work and they don't want any problems with the police. If immigration continues, as it needs to because Spain needs many more people paying into the social security system, then Spain needs to build more and people need to be ready to rent out their empty places to those immigrants.
Making Yourself An Attractive Potential Tenant
Against this background you may think that finding a rental place will be a daunting prospect. You'd be right. It is. Especially as you're likely to be one of those immigrants. That's why we started Stepping Stone Rentals to help you get your foot in the door and then you can present yourself as a more attractive potential tenant.
How? Well, firstly, you are already here and can move in straight away. Most owners won't consider that you coming over once your Non-Lucrative Visa or Digital Nomad Visa is approved is attractive. Already being here and being able to prove that you have paid what is usually a higher amount per month (As it's a medium term rental with costs included) is a good sign for an owner.
Equally, this means you now have a history, a bank account and accountability here and the owner can see you rather than just relying on photos and an online approach where there are so many scams.
Also, you get to see things as they become available, you may even get in there first and be able to say "I'll take it" to the owner before anyone else can.
Owners want "nice people" to rent their properties so when you are here and on your best behaviour being guided by my colleagues at SSR or Valencia Property you are presented as the perfect tenant for the owner. It's still really difficult. Nothing comes easy but you have a much higher percentage chance of success using this route. Read more about the Stepping Stone Route to living in Valencia buying or even renting long term at the link or click on the image below.
Conclusions
Again there are no easy solutions to the problem so prices continue to rise as demand rises and supply dwindles. All of the potential solutions are long term and require a combination of individual efforts, government action and banks, investment funds and other private firms coming forward and putting their empty properties up for rental. Don't hold your breath.
Meanwhile the government is taking positive action too. They have proposed 100% tax relief for owners renting out at market prices that they set. However those prices are very low and you can almost guarantee that the owners will ask for extra "in B" to any potential tenant getting one of these properties. And people will pay it because they want a place to live and it will still be cheaper than renting in the open market.
Regional governments have also been repossessing empty properties from banks and investment funds and putting them to use. However this is the tip of a really large iceberg in the big cities and more action is needed.
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