Spain to approve new Housing Act

Raymundo Larraín Nesbitt, February, 12. 2022

Marbella-based Larraín Nesbitt Abogados (LNA) has over 19 years' taxation & conveyancing experience at your service. We offer a wide range of over 50 legal and corporate services. Our team of native English-speaking lawyers and economists have a long track record of successfully assisting expats all over Spain.

You can review here our client’s testimonials.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
12^th of February 2022

Introduction

Spain’s social-communist government is on the verge of approving its much-vaunted Housing Act, despite all the technical opposition to its wording. I stress, technical not ideological.

I am going to make an effort to preface the article strictly from a technical point of view on why this new law should not be approved, or else requires to be heavily amended before approval.

In the article’s conclusion, I will return to review this new law and throw in my own personal views and rant on why it is being passed, and its significance on the overall market.

As a closing comment, I’ve had to self-censor my article again for political reasons. In its original form, it was over 4,500 words long with down the rabbit hole ramblings. This ‘politically correct’ abridged vanilla version - that doesn’t make my staff sweat - is only 2,500 words.

I’ll bite my tongue on this one, for now.

Spain’s new Housing Act

I had already reviewed the draft law in a scathing article from last November: Spain’s New Housing Act – 8^th November 2021.

This law is, for lack of a better word, a legal aberration. It’s a political concession from the socialist coalition to its radical left-wing partners (read communist) to remain in office. In other words, if the socialists refuse to pass it, the communist element will break up the ruling coalition and anticipated elections need to be called.

As is mandatory, by law, the Consejo General del Poder Judicial (CGPJ, for short, Spain’s Judicial Committee) needs to issue a technical report on the draft of this new law. In a scathing report from 11^th of January 2022 it voted against it. Although it is true their technical report is not legally binding, it cannot - and should not - be ignored by the ruling government.

The CGPJ gave basically the same three reasons I highlighted back in my November 2021 article:

The new law invades devolved competencies of regional governments on housing matters, attributed no less than by Spain’s Constitution from 1978, the highest law in the land (ex Art. 148.3 CE).
It introduces a plethora of undefined grey areas, left to ulterior regulation to develop, which creates substantial legal insecurity to property owners and investors. In effect, it moves the goal posts of a free-market economy and draws it ever nearer to a planned economy, where the price of goods and services are no longer determined the law of demand and supply but rather allocated directly by our government (ex Art. 38 CE).
This new law severely undermines the right to private property (ex Art. 33.1 CE)

For all three reasons above, the new Housing Act should not be approved or else requires to be heavily amended to fall in line with the Spanish Constitution from 1978 and other organic laws.

Alternatively, if not amended, Spain’s Constitution must then be amended, along with several other key organic laws, to accommodate the text of this new law as they are conflicting.

As it stands, they are technically incompatible. In despite of it, the social-communist government will plough on and will approve it shortly.

What was the government’s reaction to the CGPJ’s report?

The social-communist’s reaction to this report was basically to shrug it off nonchalantly, going as far as to compare it with the recommended date of consumption on a yoghurt’s lid (sic)! I cannot even begin to word how this is totally disrespectful and inappropriate in a western democratic government subject to the Rule of Law.

In other words, the executive has chosen to completely disregard another power of the nation (judiciary) and dismiss their report altogether. This, once more, shows a manifest disdain for the separation of powers key to any healthy democracy. Without check and balances, it is no longer a democracy, call it what you will.

The significance of ignoring Spain’s Constitution, the separation of powers (judiciary), and the democratic institutions that were created to safeguard and uphold it

Historic digression to follow, apologies.

Spain’s Constitution from 1978 is a hybrid text that amalgamates sensibilities from both left and right-wing ideologies in what was a (successful) attempt to bring peace and prosperity to Spanish society after a bitter civil war followed by 36 years of dictatorship. It helped to reconcile old foes, heal festering wounds, and unite the nation in peace. The Constitution’s Founding Fathers were themselves a reflection of our society; you could find everything, ranging from hardline communists, to ultra right-wing elements and everything in-between.

Fourty-four years on, it is apparent to all the work in fieri undertaken during Spain’s exemplary Transition has brought the country levels of peace and prosperity unheard of since Roman times (Pax Romana). Spain has enjoyed over four decades of relative peace and prosperity marred only by the assassinations of ultra-left-wing (read communist) Basque terrorist group ETA (which killed 857 people, of which 22 were children, murdered in cold blood).

Spain’s Constitution is a political concession from both sides in order to restore order to the land and bring peace and prosperity to us all after Spain’s fratricidal Civil War that killed over 500,000 people, women and children mostly. Any attempt to subvert, undermine, erode, weaken, disrupt or ignore the Spanish Constitution may bring upon us all very nasty consequences, for it is the glue of peace that binds us all in union, as one nation.

Spain’s social-communist government has gone out of its way, and then some more, to alter the status quo from 1978 and has repeatedly attempted to wield control over the independent CGPJ in pursuit of its own ideologic agenda to quash the separation of powers in Spain (for reference, see my blog post on this: Assault on the Judiciary – 16^th October 2020). I’m not going to delve into the importance of separation of powers in a democracy, because I take for granted my reader fully understands its importance in a healthy and balanced democracy.

The (irresponsible) attitude our government displays – day in and day out – continuously undermining our constitution and delegitimizing democratic institutions and powers begins to dangerously mirror the path Maduro’s Venezuela followed to demolish and implode democratic institutions from within, in its relentless path to instal a hardline communist dictatorship.

Flaunting existing key laws (i.e. constitution) and delegitimizing democratic institutions, or taking control over them, is the first step on a stark path leading us astray from democracy’s light and drawing us a step closer to the darkness of a communist utopia.

It would seem that if our social-communist government cannot wield control over the independent CGPJ (judiciary), and by God they have tried multiple times, it then chooses to dismiss its technical reports and carry out a frontal assault on Spain’s Constitution in broad daylight.

This is nothing new for our communist government which has done so repeatedly over the past years through myriad laws and regulations; relentlessly undermining Spain’s Constitution and the right to private property, law by law, day by day, inch by inch. Spain’s moderate socialist element of the government is a willing collaborator of its radical communist partner, and as a result we get landed with biased laws, such as this new Housing Act.

At times we can’t see the forest for the trees.

It’s the bigger picture that really matters, not trivialities such as this new law, which only serves a higher purpose.

Conclusion

Ok, enough of rabbit holes, let’s get back to Spain’s new Housing Act.

This law, as mentioned in my articles from last November ’21 and October 2020, is yet again a frontal assault on Spain’s Constitution, on private property (as enshrined by our Constitution), on the judicial power (CGPJ), on devolved competencies to Spanish Regional Authorities as laid out by Spain’s Constitution, an attack on our free market economy on artificially imposing rental prices and introducing a planned economy that will stifle it (exactly the opposite of what our real estate market needs btw).

In the meantime, our pseudo-communist government will use this law as flagship of its lofty ideals (at the expense of other people’s private property) to garner the vote of a disenfranchised youth with the largest unemployment levels, not only of Europe, but out of all 38 countries that make the OECD.

In my view, Spain’s new Housing Act will bring three main negative effects (amongst many others collated in our October 2020 article):

It will foster the opposite effect it seeks, that is to increase the price of rentals across all of Spain. Fearful landlords will pull out their properties of the rental market, which in turn will impact on price, increasing it as there will be fewer properties to rent.
It will also deter foreign investments in real estate in some regions of Spain (Catalonia, Balearics, Valencia), fearful of the widespread legal insecurity and market interventionism by the communist state this new housing law introduces.
As a result of the above, as mentioned in my November ’21 review, it will fracture Spain into two areas: a free-market area and a planned state economy. The reason being is that this law deals with devolved competencies to regional authorities who are in fact legally empowered to disobey it (resic). Resulting in regions under the control of right-wing policies (i.e. Andalusia, Madrid, Galicia etc) which will not implement it and will in fact openly oppose it; whereas regions under the control of left-wing ideology (Catalonia, Balearics, Valencia) will wholeheartedly embrace the new law and implement it zealously. This will translate into non-resident investments being channelled to the former as opposed to the latter, creating even more unemployment and inequality in regions under left-wing control.

But what is the real impact of this new law? In short, nada.

Borrowing from Shakespeare, it’s much ado about nothing. Because the law in itself will surely be challenged by (right-wing) regional authorities to Spain’s Constitutional Court who will then repeal it for all the reasons the CGPJ meticulously points laid out in its report from January 2022. Granted, this will take several years to unfold. And by the time we have a ruling on this, it is likely a new government will be in office with a different ideology from the communist one now in power.

But this will necessarily take several years to achieve, and in the meantime, and most fundamentally, it will help our communist government to achieve its self-imposed goals and agenda; that is to woo the votes of a disenfranchised electorate and (attempt to) win a new four-year term in office.

If the communist government truly wanted to end the escalation in long term rental prices, that indeed does afflict vulnerable collectives such as young and senior citizens, it could make a two-pronged assault, for it wields the power after all:

On the one hand, it could fiscally incentivize long term rentals (which are the ones these collectives sorely need). For example, why is the landlord’s 60% tax allowance on long term rentals only open to resident landlords? That’s daft. Clearly, it should be made extensive to all non-resident landlords to strongly incentivize long term lets. This discrimination is now being challenged before the ECJ (because it is a clear-cut case of fiscal discrimination against fellow EU nationals) and I hope Spain loses (again). As right now there is no tax incentive on long term lets, landlords logically opt for holiday rentals instead (with lenient tax allowances of 70%, or more) which pushes the price of long-term rentals up (as there are fewer units available on the market because they are being used for holiday lets instead, law of demand & supply, yada yada).
On the other hand, our government and public administrations should make an effort to allow more properties into the market, by way of releasing public land. This would immediately reduce rental prices across the board. This would be achieved by significantly reducing the admin red tape (deregulation) associated to developing land and make use of the vast swathes of land in possession of public administrations all over Spain which, for reasons only known to them, are not being developed as society at large demands. Same as in China, Spanish Public Administrations make a lot of money speculating with land as they levy several taxes throughout its development. Taxes that pay (very) high wages for those privileged few that work in town halls all over Spain (which in most cases are not career civil servants, btw, just cronies of the ruling local political party, whether its left or right-wing).

But I guess that’s just wishful thinking on my part, silly me. It’s much easier to capitalize politically on widespread social discontent on blaming ‘predatory’ vulture funds and ‘wicked’ foreign investors for the rise in rental prices, aha.

Our irresponsible and ideologically-driven communist government will - once more - make use of the new Housing Act, wielding it as political propaganda, in an attempt to fool a large part of our society, specifically the young and unemployed, fuelling their rage and exacerbating social discontent to harness their vote in the upcoming national election; all the while dismissing any opposition to its flagship project as a conceited effort of radical hard right-wing pundits, without giving any merit to the technical considerations on why it cannot be realistically implemented; that is without changing our constitution and organic laws.

Facts no longer matter, only emotions.

Deary me, kind of reminds you of the Brexit fiasco and we saw how that panned out, thank you very much.

“You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time.” – Abraham Lincoln

Abraham Lincoln (1809 – 1865). From an impoverished humble background of corn farmers, this self-taught American lawyer, strategist and politician would rise to serve as the 16th US President. He resolutely ensured a pro-Union victory, strengthened the federal government, modernized the economy, brought about the emancipation of slaves, and preserved the Union. During his tenure, he held presidential elections in 1864 to be re-elected, amid a devastating Civil War that threatened to tear his country apart and engulf it in a sea of darkness; yet he gave example in the face of adversity, holding steadfast to his democratic ideals, steering the ship safely into port and acting as a beacon of democracy which light shone with a fierce intensity the likes of which the world has never witnessed, before and since. Never again would a country hold presidential elections amidst a bloody civil war in what constitutes one of History’s greatest democratic feats to date. But most importantly, he went into great lengths to ensure the festering wounds left open during the fratricidal Civil War were healed; generously reconciling both sides in equal terms, as one nation, indivisible, under God. It is for this very reason, that more than two centuries on, he is widely regarded as the greatest American President to grace the White House; likely the greatest American of all time, towering above the rest. Through his courage and sacrifice, which ultimately would claim his own life, he laid the groundwork of what was to become the greatest and most powerful nation on earth over the next two centuries. A true statesman that would always put ahead of any consideration the best interests of his people, by tearing down divisive walls and fostering at every opportunity union.

Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.