Housing is one of the most critical markets in any country. What happens in this sector ripples through every single aspect of society and the stakes are huge. For example, the probability of individuals between 20 and 25 years old having a child increases by more than 30% when they finally secure a house. On the flip side, getting it wrong is disastrous. Researchers have shown that stringent housing supply constraints in high-productivity cities like New York and San Francisco lowered aggregate U.S. GDP growth by a staggering 36% between 1964 and 2009.
With this in mind, it is quite obvious that governments should focus on making housing more affordable by allowing more of it to exist. But what Spain did with the 2023 Housing Law was quite the opposite. Instead of fixing the root causes, they introduced a clumsy two-tier system of intervention—some measures applied nationwide and others triggered locally—that has fundamentally broken the market mechanics.
The National Mandates: Squeezing the Landlord
First, let’s look at what applies to everyone in Spain, regardless of where they live. The law introduced measures that sound nice on paper but ignore basic incentives.
It shifts costs directly to landlords, making it obligatory for them to pay for bureaucratic procedures like real estate agency fees and contract formalization. This applies even if the landlord is just an individual renting out one flat, effectively increasing the upfront cost of putting a property on the market.
More dangerously, it decouples rent from the CPI (consumer price index). Historically, contracts were updated based on inflation to keep their real value. The new law permanently cuts this link, imposing a 3% cap for 2024 and inventing a new reference index for 2025 onwards. This ensures that whenever inflation rises, rental income loses real value.
On top of that, the law builds a bureaucratic firewall against recovering property. It modifies the civil procedure Law to mandate strict vulnerability assessments by social services and imposes suspension periods of up to four months before an eviction can proceed. As the Universidad de las Hespérides points out in their recent study, this creates legal insecurity that scares off investment; it’s no coincidence that Spain ranks poorly in international indices regarding property rights protection compared to its peers.
The Local Level: The “Stressed Zones” Trap
In areas declared as “Stressed Residential Market Zones,” the intervention becomes far more aggressive. Here, we see strict rent control on new contracts. For small owners, the rent is frozen to the previous contract’s price. For large holders it is strictly capped by a government index.
To make matters worse, there are mandatory contract extensions. Tenants can request extraordinary annual extensions for up to three years, and landlords are legally obliged to accept them. You lose control over your asset and the duration of the lease.
The Seen and The Unseen
All of this might sound good at first sight; it looks like it protects vulnerable people. But as Henry Hazlitt showed in Economics in One Lesson and Frédéric Bastiat in his wonderful essay The Seen and the Unseen, to analyze if a policy is effective, we have to look at second-order effects. And the empirical evidence for this law isn’t just bad, it’s devastating.
What is seen is that a current tenant might face a smaller rent hike this year. What is unseen is the destruction of the future supply.
According to the Universidad de las Hespérides, Spain already has a structural deficit of housing. The country needs between 100,000 and 150,000 new homes annually to meet demand, yet in 2022 only 90,000 were started. By making renting riskier and less profitable through price caps and eviction hurdles, the law exacerbates this shortage. Landlords calculate that the risk is too high, so they simply stop renting out apartments.
This isn’t theoretical. Researchers found that rent control in San Francisco led to a 15% reduction in rental supply as landlords sold their properties to avoid regulations. Similarly, a study documented that Berlin’s rent freeze caused available rental listings to plummet by up to 60%, locking out the very people the law was supposed to help. In Stockholm, rent control means that people have to wait 20 years for a house in the city center.
The “anti-eviction” protections also backfire. Facing a system where removing a non-paying tenant takes years, landlords respond by tightening their background checks. They stop renting to single mothers, students, or low-income workers, people they perceive as “riskier” because they can’t afford the nightmare of a blocked eviction. The law ends up hurting the most vulnerable.
What Actually Should Be Done
Housing is like any economic commodity. When supply increases, its price falls. The solution isn’t to punish owners, but to cut the regulations that make housing unaffordable. As the Universidad de las Hespérides notes, the “effort rate” for Spanish families has jumped from 28% in 2015 to 32.5% in 2022, not because of greed, but because supply is strangled by rigid zoning laws where only a tiny fraction of land is legal to build on (more specifically, 4%).
Spain should look at reality. It should follow Houston’s example on zoning (having almost none in the traditional sense), which has made it one of the most affordable major U.S. cities. And it should look at Argentina. When President Milei repealed the restrictive Rental Law in late 2023, the market reacted exactly as textbooks predict: supply in Buenos Aires skyrocketed by 218% in just six months, and real rental prices fell by around 20%.
The housing market is just another proof of Ronald Reagan’s famous dictum: “Government is not the solution to our problem; government is the problem.”
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