La eutanasia del rentista en España ataca la enfermedad equivocada

When John Maynard Keynes penned about the "rentier's euthanasia" in 1936, he envisioned oversupply of capital eroding rental yields. Spain's government might achieve a similar outcome by making rental properties unprofitable, prompting landlords to exit the market. However, the authorities lack a convincing alternative. Prime Minister Pedro Sánchez stakes his political future on the reforms.

Spanish media reported on Friday that he might call for early elections after the independentist Junts party withdrew two emergency decrees. Facing poor poll results and corruption scandals, Sánchez hopes to capitalize on public outrage over the evictions of 87-year-old Maricarmen Abascal from her Madrid apartment. If successful, the measures could represent Spain's most far-reaching housing intervention since the dictatorship of Francisco Franco.

The rules, extending on the 2023 Housing Law, extend lease durations, require landlords to notify tenants more promptly and pay generous compensation, and make evicting vulnerable tenants who have fallen behind on rent more difficult. They also allow property owners to claim unpaid rents from regional governments—an obligation that could be potentially limitless.

Certain parts of this legislative frenzy exclude "bad bank" funds, assumed to include institutional investors like Blackstone or Cerberus. While some of these legislative measures could improve affordability, such as stricter rules for short-term rentals, Spain's acute housing crisis remains a primary issue. Over 45% of low-income renters in Spain allocate more than 40% of their disposable income to rent.

Unregulated desregulation is not the answer, as the construction sector still bears the scars of the pre-2008 excesses and faces high costs and labor shortages. Moreover, most people are unwilling to rent without certainty about lease duration and price hikes. In Germany, where 52% of homes are privately rented, compared to 17% in Spain, contracts are indefinite and difficult to terminate.

However, landlords also need to earn a living, which is why evictions for non-payment are easier and rent reviews follow broader market indicators. The Spanish decrees, in contrast, tie rent hikes to an inflation-tracking index, with increases limited to 2% or frozen until 2027. In the Netherlands, where comparable price caps were expanded, only 7% of homes are privately rented.

Perhaps Sánchez hopes to tilt the market further toward ownership by forcing landlords to sell. After all, the government has announced zero-interest loans up to 20% of a property's value. However, the British Help to Buy program, with similar features, showed that such policies inflate prices and favor relatively affluent individuals.

Low-income renters expelled from an increasingly shrinking rental market are unlikely to afford a mortgage: a 100 square meter Spanish home still costs 12 times the annual disposable income. The only solution left is what Keynes called "socialization of investment": the government could intervene and build affordable rentals, in addition to buying them from investors who leave the market.

But Casa47, the new state housing entity, only plans to invest 13 billion euros over a decade, raising public housing from 3.4% to a mere 8% of the total. Ultimately, Sánchez risks suffocating a market without reviving another. Whatever form these improvised interventions take, they set a troubling precedent for other democracies, where they are increasingly seen as a tool to salvage political fortunes in decline.