The Spanish government has come up with draft legislation that it claims will jumpstart the country’s tiny rental market.
Good news, you would think, given the disastrous obsession with home ownership, which stands at around 82%. Spain’s love affair with bricks and mortar led to a speculative bubble, that in 2007 then burst, sending the once booming economy into a deep crisis from which Spain appears unable to recover.
The right-wing administration of Mariano Rajoy argues it is trying to tackle the fact that landlords are reluctant to rent their property because the law is too easy on rogue tenants.
So it will be give them greater legal safeguards against defaults. Tenants, meanwhile, will get greater ‘flexibility’ to end their leases. The law will encourage ‘fast-track evictions’ of tenants in default, settling arrears at the last minute will no longer protect defaulters from eviction.
The secretary of state for infrastructure, Rafael Catalá, says the aim is to prevent abuses by ‘default professionals.’ Owners will also have an easier time getting their property back if they need it for themselves, as they will only need to give two months’ notice .
And tenants gain ‘flexibility’ too, as they only now have to give one month’s notice instead of two, if they wish to terminate their lease ahead of time.
But as part of a package of changes, the administration of premier Mariano Rajoy is also curtailing the use of the Consumer Price Index (CPI) as the basis for annual rises in the rent. Current legislation stipulates that during the first five years, rent is indexed to the CPI inflation rate, and only after that period, can it be freely negotiated. That period had now been reduced to three years.
A ‘balanced’ piece of legislation, the government says. But that’s not how some see it.
Consumer organizations welcome measures that genuinely tackle badly behaved tenants. But they argue this law will simply favour bad behaviour by landlords, many of whom are the banks.
FACUA-Consumers in Action argues that the bill is simply a ‘smoke screen’ for ‘cutting tenants’ rights’ and will ‘further boost speculation’ in the private rental market.
‘Any tenant who scrupulously pays their monthly bills can be thrown out,’ it says, adding that what people need is the stability provided by affordable long term rents.
‘It minimizes the rights of tenants in order to favour speculators and financial institutions,’ says Facua spokesman, Ruben Sanchez, arguing that ‘landlords who want to get rid of their tenants to rent the property for a higher price’ will now have a free hand. The owner can ‘get rid of the tenant if someone else has offered a higher rent or impose a rent well above that. ‘
Far from bringing Spain’s rental market in line with the European average*, as claimed by the Ministry of Development, it will just replicate the brutal laws of the recently reformed jobs market that by easing hiring and firing effectively treats employees as just more expendable facet of the consumer society: ‘People will be chucked into the streets, despite the fact that they have to fulfilled their obligations,’ argues Sanchez.
The facts are on Sanchez’s side. The only hard evidence of rogue tenants should be found in the official figures on the number of sentences handed down by the courts with respect to rental contracts: these show that they amounted to a mere 23,000, just 1.28% of the total 1.8 million properties rented privately. Furthermore, even the government concedes that rents are actually already ‘very high’. The idea that deregulating prices will encourage land-lords to cut them against a background of scarce supply is unconvincing.
The real problem
The Government, as with pretty much every other austerity-led measure it has taken since being elected in November 2011, is ducking the problem, when it’s not been making it worse.
Home ownership has been promoted for decades in Spain, but got an extra boost in the noughties through super-low European interest rates via Spain’s membership of the Single Currency. It was part of a consumer dream sold by the elite to ordinary Spaniards to win consensus around market-driven globalisation and keep them clear of the unwelcome anti-capitalist ideas of the once powerful communist party and the older anarchist tradition. But apart from the bankers and the people at the top of the real estate industry, no-one got rich. House prices increased by 200% in the decade to 2008, five times faster than inflation., and people buying during that period were forced to take on enormous debts. Since, prices have fallen by 31%. The housing dream has turned into a nightmare.
Following the collapse of the property market, Spain has been on cold turkey, unable to survive without the drug of bricks and mortar that has over the years sucked in huge resources – including billions from foreign banks – that would have been better spent elsewhere. Coupled with punishing government austerity measures, the country is in deep recession. The jobless rate is at 25 per cent, the highest jobless rate in industrialised world, with youth unemployment over 50%. Unemployment and welfare cuts are impoverishing the people so much so that a report published earlier this year by Caritas found that 22% of households are living below poverty line and another 30% are at risk of joining them. This, against a background of falling wages, as a share of the nation’s wealth, since the start of the 1980s.
Little surprise then that evictions have soared – the Spanish courts processed over 58,000 eviction cases in 2011, a record. That’s 159 people a day, four fifths of whom living with children or classified as vulnerable. Currently, around 2 million, or a fifth or all properties, are currently empty. And all this has left the banks saddled with around 80 billion euros worth of repossessed property that they cannot sell and loans to developers. As a result the government has had to step in with huge sums of money it doesn’t have to rescue them. Which Spaniards are paying for with endless austerity programmes. A viscious circle.
Real alternative
There is a better and more equitable way to fix Spain’s distorted housing market that will benefit hard pressed Spaniards and create a more sustainable, balanced economy, the consumer association suggests.
Instead of socialising banks’ private debt mountain for no apparent gain for Spaniards, the government should force nationalised Bankia, the largest owner of (some very toxic) real estate in the country, CatalunyaCaixa, NovaGalicia and Banco de Valencia, to make available their vast portfolio of empty properties for rent at prices that Spaniards on modest incomes can afford.
Of course, people would still need jobs to pay their bills, and that would require a much wider economic rethink that embraces a more sustainable growth model. But giving banks back a useful social function in society, such as providing affordable homes, is certainly part of it. Indeed it would be reclaiming one of the key roles of local savings banks, the Cajas, before they succumbed to the finance-driven speculative wave that swept across Spain, Europe and much of the West from the mid-80s.
Sadly, despite the persistent mass campaigning efforts of the unions and Indignados movement, who were back on the streets again on Friday, there’s no chance of any of this becoming policy any time soon.
Rajoy has lost a lot of support in recent months, polls show. But he has a timid and even more unpopular opposition in the Socialists who were in charge when some of the worse excesses of the country’s private debt-fuelled disaster took place (and, it should be remembered, kicked off in May 2010 the austerity fest to boot). Furthermore, he’s only 9 months into a four year term, with a comfortable parliamentary majority.
Yet if it becomes law, the bill is likely to further inflame anger in Spain that it is the majority who are bearing the burden of the pain while the government, working hard at a fresh, 100 billion-euros bail-out, sides with the banks
Come to think of it, some might be tempted to support the ‘fast-track eviction’ idea, if only to have it applied to the Moncloa Palace, the prime minister’s official residence at Madrid…
Tom Gill is a London-based writer and journalist. He blogs at www.revolting-europe.com on European affairs from a radical left perspective