Barcelona Metropolis

Rental prices in Barcelona have changed direction, breaking a two-year cycle of consistent increases. During this period, prices rose steadily, reaching an average of €1,200 per month – the highest ever recorded in the Catalan capital and across Catalonia. Nonetheless, data from the second quarter of 2024 indicates a significant decline of 5.2% compared to the first three months of the year, bringing the average rent down to €1,131.75. Moreover, the number of signed rental contracts has also fallen, with a decrease of 17.2% compared to the same period last year.

The updated rental price data published in October was among the most eagerly awaited in recent years, as it was expected to show whether the cap introduced in Catalonia since March had managed to curb the surge. While the conclusion is not definitive, it is clear: prices have fallen since the cap was implemented. This is evidenced by the average of all contracts signed in the second quarter, published by the Catalan Institute of Land (Institut Català del Sòl, INCASÒL), based on data from rental deposits.

The cap is enforced under the State Housing Law, enacted in mid-2023, which allows autonomous communities to set limits on rental prices in municipalities identified as areas experiencing high residential market pressure. Initially, Catalonia designated 140 such areas, and in July, it added another 131, resulting in a total of 271 municipalities where over seven million people reside – accounting for 90% of the Catalan population. In all these areas, rental prices have dropped by an average of 5%.

However, before we delve into this data, it is important to provide some context: Catalonia has been the first autonomous community to implement price controls, effectively making it a testing ground for this measure. What happens to rental prices in Catalonia will largely influence its future. Outside Catalonia, when the figures were published, only one other area had been designated as a high-pressure area: the Basque municipality of Errenteria. In November, Navarre joined in adopting rent control measures.

This situation arises because the implementation of the law is optional. This has led to weeks of conflict between the Spanish government and several autonomous communities governed by the PP [Partido Popular, People’s Party], with the Community of Madrid at the forefront, due to their refusal to apply the housing law. The Minister for Housing, Isabel Rodríguez, initially threatened to cut funding for communities that did not enforce the law, but later clarified that she would reward those territories that did. Yet, Isabel Díaz Ayuso’s government has not budged, just as it did not in the wake of the mass demonstration in mid-October in the Spanish capital, where tens of thousands of people took to the streets to demand a reduction in rental prices.

When discussing price controls, there are two components of the state housing law that act as caps in high-pressure areas. Firstly, there is a regulation that affects all rentals, prohibiting any price increases for all contracts – whether renewals for existing tenants or new rental agreements – regardless of who the owner is. Rents can only be raised in line with inflation, which will change when the Spanish government establishes a new reference index that will determine permissible rent increases.

On the other hand, there is the price regulation index, which consists of a reference index that stipulates a price range for all rental properties owned by large landlords – in Catalonia, this includes all owners with five or more properties – and also for homes that have entered the rental market for the first time in the past five years.

This is not the first time that Catalonia has applied a rent cap; in 2020, it was a pioneer in developing its own law that limited prices for 18 months, until the Constitutional Court annulled it following an appeal from the PP. There was already empirical evidence from that case, and it was this element that, precisely when the rental data from Catalonia was published in mid-October, the Minister of Economy, Carlos Cuerpo, referenced in order to draw definitive conclusions. It was still too early, he said, to have “sufficient evidence” on the effect of capping prices.

So, what do we know about the previous rent cap from four years ago? The only peer-reviewed study – which underwent review and was published in an academic journal – was conducted by Mariona Segú, Jordi Jofre-Montseny and Rodrigo Martínez-Mazza. Their findings pointed to a 6% reduction in rental prices without any evidence of a decrease in the number of contracts signed. In other words, that cap did not affect the supply of rental properties.

A side effect: reduced supply?

Nevertheless, recent data on rental prices in Catalonia from the second quarter reveals a fall in supply. In high-pressure municipalities, 24,543 rental contracts were signed between April and June – a 17.2% decrease compared to the same period the previous year. In the rest of Catalonia, the drop was only 1.6%. Is this a result of the cap? The answer remains the same as before: it seems likely, but the conclusions are not yet definitive. The Sindicat de Llogateres [Tenants’ Union] itself attributed the decline to a large-scale shift of properties to seasonal rentals, specifically to bypass the caps, while the Cambra de Propietat Urbana [Urban Property Owners’ Association] argued that the drop in contracts was due to properties moving into the sales market.