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An OECD Study Concludes That Limiting Rental Prices Hurts The Tenant

admin by admin
June 16, 2021
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An OECD Study Concludes That Limiting Rental Prices Hurts The Tenant
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Administratively limiting rents may initially benefit tenants, but in the long run it hurts them because it discourages the market for many homes and the shortage ends up making prices more expensive, according to the OECD.

Rents fall by almost 3% in one year and fall more than 8% in Madrid
This is one of the warnings to Spain from the Organization for Economic Cooperation and Development (OECD) in a study presented this Monday on how to promote affordable housing , in which it points out the narrowness of the rental market and economic problems that that entails.

On the situation in Spain, Luiz de Mello , director of studies of the economic department of the OECD, emphasizes to Efe that applying caps on rents, “is an option that has its costs” because “in the long term it does not protect tenants” .

“There are other options that do not create the same types of costs” such as the development of social housing, which are very scarce, although that means increasing public investment in the sector, explains De Mello.

His analysis is similar with the tenants’ protection devices against evictions, which can also generate distortions if they dissuade owners and investors from putting their property up for rent as they consider themselves to be helpless before the Justice and the Administration in the face of the risk of defaults.

De Mello points out that “it is necessary to differentiate between crisis measures”, when it is “very important” to protect the weakest groups , and “long-term measures that can increase supply” and prevent prices from rising.

Because the problem in recent years is that the price of housing has grown strongly, and that makes access difficult for people with fewer resources.

In real terms, prices since the 1990s have risen up to 100% in certain countries . In Spain they rose very rapidly in the early 2000s, but then suffered a sharp downturn with the financial crisis.

Since 2012, investment in housing is progressing again at a higher rate than in the OECD as a whole.

And the price gap by regions is worsening, with pressure that is particularly marked in cities such as Madrid and Barcelona.

Access to housing is particularly difficult in Spain for people with low resources. Among the group of 20% with the lowest income, 46% have to dedicate at least 40% of their salary to housing, when in the OECD it is on average 35.2%

The rental market, much smaller in Spain
Spain is one of the countries in which there is a higher proportion of owners (slightly higher than 75%), clearly above the OECD average, which is around 70%. In Denmark, Austria, Germany, Switzerland and Colombia this percentage does not reach 50%.

This means that the weight of the rental market is much smaller and very often constitutes an obstacle to people’s labor mobility , which the OECD views with concern.

Above all – says De Mello – now that with the crisis a part of the workers will have to leave their activity, for example in tourism, and reconvert to frequently seek employment in another region.

In fact, the residential mobility rate in Spain of 11.4% is one of the lowest in the OECD countries, with an average of 17.5%. It is well below countries where moving to another region is very common, as in the United States (42.5%) and Australia (48.9%).

For the OECD, the shortage of social housing in Spain, especially rental housing, is one of the deficiencies on which it would be necessary to intervene, and that requires more public investment.

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