The cap on rent updates has saved tenants up to 1,300 euros, but loses impact by lowering the CPI

The 2% limit for rent adjustments is no longer as attractive to tenants. The drop in inflation in Spain in recent months has created a situation this summer that is almost the opposite of what was experienced a year ago. If then, thanks to the rent containment measure approved by the Government, tenants could save close to 100 euros a month, now that difference barely reaches 10 euros in the most expensive capitals. However, the combined savings over the two years can exceed 1,300 euros in the most expensive municipalities in Spain, although the majority corresponds to the savings from last year. This is the case of Boadilla del Monte, in Madrid, the town with the most prohibitive rents according to the latest price index published by the Ministry of Transport, Mobility and Urban Agenda. In the cheapest (the list is made up of towns with more than 25,000 inhabitants), which is Arcos de la Frontera in Cádiz, tenants will have saved about 340 euros in these two years.

The latest edition of the official statistics collects data relating to 2021. Based on the average rental amounts, EL PAÍS has recalculated the rents in 2022 and 2023 in two ways: increasing them by 2% or with the CPI of the reference month, which It is the indicator that is usually included in lease contracts. The average savings for tenants is deducted from the difference between the two.

The rent update has nothing to do with the price that is set in a new lease, which is free. This is a price increase that can be made once a year, in the same month in which the contract was originally signed and for the duration of the contract. The contract has to specify it and the owner can claim it (many times this is not done), and from then on the increase is applied to the following twelve monthly payments. Since the purpose is to adapt the price to the cost of living, it has traditionally been done with the CPI. This caused some tenants to see the cost of their homes rise sharply at the beginning of the current inflationary escalation. Then, the Executive decided to mediate and put a temporary limit on rent updates of 2%. It entered into force on March 31, 2022.

This measure, therefore, has saved a lot of money for tenants who saw their rent updated in the months in which inflation was highest, which coincided with last summer. However, the differences have been reducing as prices returned to more moderate growth paths. This is precisely what has happened so far this year, when the greatest impact of the measure has been seen in the first months. Since inflation was around 6% in January and February, avoiding this percentage and raising the average income by only 2% meant saving more than 30 euros per month for an average rental in Madrid and Barcelona. The differences mean paying around 400 euros less per year. In the rest of the cities with more than half a million inhabitants, the average savings in the first months of 2023 was around 300 euros per year for those who rent in Valencia, Seville or Malaga. In Zaragoza, the cheapest, it would exceed 200 euros per year.

In addition, those who renew their rents in January, February or March also found that the measure was not in force when it was their turn to update in 2022. That is why then their rent went up a lot and they have achieved the most substantial savings this year. Starting in April, the opposite happened: the savings have been negligible compared to the previous year. With the progressive relaxation of the CPI, the differences between the extraordinary cap or the traditional method barely reach 10 euros per month in the two largest cities. And based on average rentals, in almost all the autonomous communities the difference does not even reach six euros per month.

In June, inflation was even slightly lower (1.9%) than the price update limit, which would cause the paradox that updating the rent with this limit would be more expensive for tenants. However, the Ministry of Transportation has always defended that the lowest indicator should be applied, and other experts also believe this, despite the fact that the wording of the rule generates confusion for others. In any case, this is such a small disparity that in most cases it is not even close to one euro per month.

In addition to losing interest from an economic point of view, over time the measure has also shed the part of the controversy that it generated at the beginning. Antonio Carroza, president of Alquiler Seguro, remembers the time when his company received “many calls” asking how the 2% update should be applied. “It generated controversy and a lot of doubts,” says the manager, “but as there are renovations every month, as the issue becomes more established, it becomes better known, and there are owners who have already had to apply it twice.”

And they will probably have to do it a third time, because the housing law that the Cortes approved at the end of the last legislature stipulates that rent updates are no longer made by the CPI. In its place there will be a new index that has yet to be defined and must be operational in 2025. Before that, by 2024, the standard contemplates that the update cap be raised to 3%. This could raise new doubts if inflation remains below, a scenario in which Carroza predicts that there would be tension between landlords trying to apply the upper limit and tenants betting on the lower limit. In that case, the issue could end up “with the courts having to interpret the law.”

However, analysis centers such as Funcas still estimate that inflation may grow at the end of the year and believe that in the near future it will reach an average of 3.4%. And economists like Gonzalo Bernardos, a professor at the University of Barcelona specialized in the real estate market, agree with this vision. This summer’s low inflation has something of a mirage (the statistical effect that caused last summer to reach its peak now favors less swollen percentages), he explains, and “in a normal scenario it could go to 3.5 at the end of this year.” %”. The expert therefore believes that the 2% limit, with the exception of June, “may continue to be favorable for tenants in the rest of the months.”

What both Bernardos and Carroza agree on is the lack of stimulation of supply, where they place the focus of the evils of rentals in Spain. The university professor warns that “in large cities there is a progressive process of reduction of conventional rents and an increase in the rental of rooms”, intended mainly for students. And he recalls that, apart from temporary measures to protect tenants from inflation, “the main problem that tenants have today is finding housing.”

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