By Rodrigo Padilla. The Adeje Town Hall, during the full gathering on 3rd April, overwhelmingly endorsed a proposition to the Canary Islands Government to compile the necessary reports to label the southern town as a “stressed residential market zone.” This procedure marks the third instance in the Canary Islands (previous occurrences being La Orotava and Granadilla). This necessitates the regional authorities to generate a file analysing the specific circumstance of the municipality’s rental rates, subsequently ratify and announce the southern town, officially, as a strained zone. Among the key features of the tool, the main focus is on equalizing rental prices in designated strained areas, the introduction of a pricing index for rental properties, the initiation of fresh tax benefits for landlords, and the ability to tax unoccupied homes, among other aspects. The new regulation is stirring deliberation.
What Grounds It?
The declaration of strained residential market zones is a measure proposed under the Housing Law. The current legislative approach emphasises the substantial and gradual surge in the average rent expenses, coupled with fundamental outlays. The Government’s objective through this amendment is to “harmonise the housing market,” as stated in article 18 of Law 12/2023 on the Right to Housing. With this motive, the impacted municipalities are granted the authority to identify and justify the existence of a potential inadequacy in the housing supply for the local residents.
How to Determine a Strained Area? Among the prerequisites stipulated by this provision to designate a town as such, it is pertinent to mention that if the home rental cost and basic utilities surpass 30% of the mean household earnings, and if the rental expenses in a region escalate by more than 3% compared to the Consumer Price Index (CPI) of that region during the prior five years before its identification as a constrained zone. This classification is the responsibility of the Housing Administrative bodies, after specific solicitation by each municipality deems it necessary. In the case of Adeje Town Hall, one of the most recent to announce itself as a pressured zone in the south of the island, following a favourable vote during the Full Council session, the procedure will be forwarded to the Canary Islands Government. The regional executive is anticipated to compile a report in the upcoming months on the rental scenario in the region, to subsequently devise an index with precise price parameters (customised to each property and its context), and determine the plausible maximum amount that landlords can demand for their properties in novel lease agreements.
Benchmark Price Index
The methodology behind this benchmark price index for rental properties entails various intricacies that necessitate elucidation. Even though a municipality is categorised as a strained area, every landlord holds the freedom to either leverage the tax benefits and subsidies provided by this legislation, complying with the applicable price guide for their rented premises, or, conversely, persist with their subjective valuation of the rent for their property. Consequently, this is not a binding stance if the town has declared itself a strained area. The intention behind the “market correction” price guide is to rectify the exorbitant housing costs for the residents. Each property, with its unique attributes, will have its distinct valuation. The criteria employed by the authorities contemplate a plethora of factors, such as the presence of an elevator, scenic views, the condition of the apartment… These criteria might raise uncertainties, as per several experts, citing concerns over the weightage accorded to each metric which could result in an arbitrary application. Fundamentally, these metrics are implemented in a flat and uniform approach, negating the dynamic nature of the market, wherein valuation fluctuations can occur between cities and even neighbouring areas. Persistent challenges concerning this new legislation include the exclusion of corporate-owned properties in the personal tax filings or the failure to distinguish the year of signing for lease agreements.
