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With the beginning of 2025 the rules of the game in the rental market in Spain are changing - in particular with regard to the updating of rents and what increases are permitted. As of 1 January this must be carried out using the 'Índice de Referencia de Arrendamientos de Vivienda' (a special national rent index that places a ceiling on increases at annual review), which central government commissioned Spain's INE national statistics institute to draw up and which was published by the INE for the first time on Thursday. This pricing index applies to all Spain with a ceiling of 2.2%. This is the figure for the month of November. From now on it will be published every month on the same day as the CPI (consumer price index).
Online calculator: www.mivau.gob.es
What does it mean in practical terms? The existence of this index and its compulsory application by law means that the annual increase in rents will be limited to this percentage. So, an average rent in Malaga, standing at around 1,200 euros per month (for a property of 80 square metres at a rate of 15.2 euros per month per square metre according to the latest report by property valuation company Gesvalt), will only be able to rise by a maximum of 26.75 euros or around 320 euros per year. In the case of a smaller flat of 60 square metres, costing 912 euros on average at the same 15.2 euros, the maximum increase would be 20 euros per month or around 240 euros per year. Meanwhile, for a 120 square metre home, which would cost more than 1,800 euros, the maximum increase would be 40 euros per month or just over 480 euros per year.
The measure applies to all rental contracts signed after the approval of the Housing Law, which was published in the Official State Gazette (BOE) on 24 May 2023, or those contracts signed prior to this law, but which include this tool as a formula for their renewal, according to the Ministry of Housing and the Urban Agenda. The Cuatrecasas law firm in Malaga points out that it is a percentage that acts as a price cap for the annual review of rental agreements, regardless of whether or not the lessor is the main tenant named on the lease and whether or not they are located in a residential market area that is in high demand with low supply.
In technical terms, this index is defined as the minimum value between the annual rate of change of the CPI, the annual rate of change of the underlying CPI and an adjusted average annual rate of change designed by the Ministry of Housing and the Ministry of Economy. The aim of the formula is for the new index to be below the CPI.
Bringing in this limit to rent increases was central government's aim to "avoid disproportionate increases in the rent of rental contracts." Until now most rents were linked to the CPI for their annual review. In fact, according to Law 29/1994, "the increase produced as a consequence of the annual update of the rent may not exceed the result of applying the percentage variation experienced by the Consumer Price Index on the date of each update." However, in recent times there has been a caveat to this. Due to the inflationary crisis triggered by Russia's invasion of Ukraine, the Spanish government imposed a cap on rent increases of 2% in 2022 and 2023, while in 2024 the ceiling moved up to 3%. In contrast, the CPI has exceeded 10% in recent years.
2.2% price cap on rent increases
It is two tenths below the national CPI for the month of November (2.4%) and six tenths below the provincial indicator (2.8%).
The 2.2% that the INE places as the first price-point index for the month of November is lower than the national CPI for the same month (2.4%) and also lower than the provincial CPI (2.8%).
This is another measure adopted to curb the rise in rents, the other being the one that was approved in 2019, making the duration of the rental contract five years if the owner is a private individual and seven years if the owner is a company. In this way, a tenant signing a rental contract in 2023 after the entry into force of the regulation that implements this new index would be assured of five or seven years of controlled rises in the price of housing.
Sadly, there can be a wide gap between what the law says and the reality. For example, in recent months it has been observed that the signing of rental contracts for less than a year has been used to avoid both the automatic annual extensions to contracts and the limitation of rent increases (although there are experts who consider that these short-term rentals do not exempt the application of the rule).
To this must be added that the caps on rent increases that have been in place in recent years to avoid rents increasing in line with a soaring CPI were conditional on there being no agreement between tenant and landlord, who could decide on a higher increase that might then be accepted by the tenant so as not to have to search for a new rental in a market characterised by scarce supply. "The tenant's bargaining power is very low because there is a lot of demand; if there is no agreement, the owner can tell the tenant to leave, the tenant's way out can be to go to court, but the judgement takes years to come out," said property expert Alejandro Inurrieta.
Thirdly, there is an increase in the number of rentals of flats by rooms, which also creates difficulties when it comes to applying the regulation, given that this type of rental is not governed by the housing laws, but by the Civil Code. "The owners are moving the flats from the regular market to the tourist market, by seasons or by rooms", confirmed Inurrieta.
The possible limited effect of the implementation of this pricing index for rent reviews also stems from the fact that, once the contract has expired, any landlord can set the price they want. "Nor has it been enforced that it is the landlord who pays the commission to the real estate agency when the lease is signed; in many cases it is still the tenant. There is a lack of an inspection body to ensure that the rules are followed. If having rents linked to the CPI did not work, now this index will not fulfil its mission either; moreover, it adds more confusion, more noise to the market, landlords can rightly ask themselves why there is another index that is only a few tenths of a percentage point lower than the CPI and think that it is just another whim of the government so that landlords make no money," stated Inurrieta.
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