No silver bullet: Despite new housing laws and government intervention, Spain’s rental market remains under severe strain

THE rental housing situation in Spain remains dire. The number of long-term rental units continues to decline, even as demand keeps rising. Everyone agrees something must be done – but there’s no ‘silver bullet’.

In early April, hundreds of thousands of Spaniards took to the streets in over 40 cities, demanding meaningful action. The message was clear: rental costs are rising faster than incomes and inflation, and it’s pushing people to the brink.

In 2024, rental prices across Spain rose by 11.5%. The increase was especially steep in major cities – Barcelona saw rents jump 13.5%, while Madrid surged by 15.3%.

All of this is unfolding under the shadow of Spain’s new housing law, which introduces price controls, adjusts rental contract rules, reforms laws around illegal home occupation (known as okupas), and offers tax incentives for landlords who provide long-term rentals at or below government-set rates.

Given Spain’s fractured political climate, it’s no surprise the law has sparked heated debate. Is it a step in the right direction? A misguided fix? Or something in between?

To grasp the challenges – and the potential impact of this legislation – we need to start with the core issue: a fundamental mismatch between housing supply and demand.

Root Causes: Demographics and demand

At the heart of the problem is a simple imbalance: more people need homes than there are homes available. And ironically, this crisis stems in part from efforts to solve other structural issues.

Spain is not replacing its aging population. The replacement rate sits at 2.1 children per woman, but Spanish-born women are only having 1.12 children on average – a 2.6% decline from the previous year.

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Without immigration, Spain would face a shrinking workforce, a swelling population of pensioners, and an economy under increasing strain. Growth, innovation, and sustainability would all suffer.

A 2023 report by the Bank of Spain concluded that the country will need 25 million immigrants by 2053 – triple the current pace – to keep its pension system afloat.

Unlike many other European countries, Spain has resisted the push to restrict immigration. In 2023, net migration stood at 1.32%, or 642,000 people arriving in the country.

This influx is necessary. But it also creates more pressure on an already strained housing market. All of those new residents need places to live – and Spain simply isn’t building enough of them.

Last year, the number of new households grew by 360,000. Projections suggest similar numbers in the coming years. But housing construction has not kept up.

There’s been some good news. New home construction is finally showing signs of life after stagnating since the financial crisis of 2014–2015. CaixaBank has raised its forecast for new permits to 135,000 in 2025, after a notable 16.5% year-on-year increase in 2024.

Still, that’s far from enough. The shortfall in housing supply will only deepen in the years to come. And few politicians are willing to address it seriously – because real solutions come with real economic and political costs.

A fractured response

Spain’s far right has proposed ending immigration and repatriating migrants. That’s not only unrealistic, it would spell disaster – for pensions, healthcare, and the wider economy.

Instead, the only viable option is to tackle the housing crisis head-on. So is anyone doing that?

The new housing law was billed as a bold response. It strengthens tenant rights, caps rent increases, and offers incentives for landlords to rent long term. It also includes direct aid for young home buyers under 35.

On the other hand, the law also takes a harder stance: cracking down on tourist rentals, streamlining eviction processes for okupas, and hitting large landlords with tax penalties for keeping properties empty.

And yet, no one seems satisfied.

The April demonstrations made it clear that many view the law as too weak. Meanwhile, landlords and business groups argue it overreaches and distorts the market.

Some early effects are already apparent. Others – like changes to tourist rental rules and first-time buyer grants – will take longer to materialize.

Shifting incentives and the rise of seasonal rentals

One clear trend is emerging: landlords are pulling out of the long-term rental market.

According to a study by Idealista, long-term rental listings fell by 5% between 2023 and 2024, while seasonal rental listings jumped by 39%.

That doesn’t directly equate to fewer people living in long-term rentals – some tenants may simply be staying put to avoid massive rent hikes. But the shift in incentives is clear.

Long-term rentals can only rise 3% per year. Seasonal rentals – like student housing – offer more flexibility. When tenants move out at the end of a school year, landlords can reset rents by 10–15%.

Is this change driven by the new law? Partly. But the bigger issue remains the lack of housing construction. With demand outpacing supply, any policy change ends up distorting the market further – because there’s no slack in the system.

Lessons from abroad

Still, that doesn’t mean there’s nothing to be done. Other countries have taken innovative approaches that may offer useful lessons.

Scotland, for example, passed a housing reform law in 2016 aimed at stabilizing landlord-tenant relations. It eliminated fixed-term leases and introduced a standardized contract. Landlords could only evict tenants under one of 18 defined conditions.

Another key reform was the introduction of rent guarantors – individuals or companies that promise to cover rent if the tenant defaults. This lowers the perceived risk of renting to low-income or young tenants.

Spain is exploring a similar public model called aval publico. It would require mutual agreement between landlord and tenant, and come with strict conditions. While it won’t address the structural shortage of housing, it could remove a major barrier for long-term rentals – landlords’ fear of non-payment.

Crucially, making this a public service would help the most vulnerable, who are least likely to have access to a private guarantor.

Facing reality

There are both positives and negatives in the current situation. But we can’t lose sight of the core issue: a deep and growing lack of housing supply. Until that changes, most policies will amount to little more than a temporary bandage.

The solutions exist. But they require political will, economic investment, and a long-term strategy. Without those, we’re just buying time – while the crisis continues to grow.