New Rental Index Launches: January Contracts to See 2.2% Increase
Contracts for rental agreements established after May 2023 will see an increase of 2.2% for those due for adjustment in January. This adjustment is based on the new rental index released by the National Institute of Statistics (INE), which outlines the reference rate for housing leases as of November. This marks the inaugural publication of this rate, which the government aims to use to detach rental increases from inflation rates, thereby curbing excessive rent hikes.
The recent index is applicable exclusively to leases signed from May 25, 2023, when the new State Housing Law took effect. This adjustment mechanism only pertains to existing contracts that require updates and does not apply to newly signed leases. The INE has developed this index by considering the lower value between the Consumer Price Index (CPI) and core inflation, along with long-term economic forecasts and coefficients established by the housing authority.
According to the INE, corrective mechanisms will come into play to moderate rental increases when either the CPI or core inflation exceeds the 2% threshold. In November, both indexes recorded a rate of 2.4%, surpassing the newly established rate by two-tenths. To illustrate, for a monthly rent of EUR1,000, tenants will see an increase of EUR24 per month, totaling an annual rise of EUR288.
For rental contracts signed prior to the enactment of the State Housing Law, adjustments will resume in 2025 according to the CPI or the Competitiveness Guarantee Index, if specified in the contract. This follows extraordinary limitations of 3% in 2024 and 2% for the years 2022 and 2023, instituted to alleviate the inflationary effects stemming from the Russian invasion of Ukraine.
The introduction of this index is part of a broader strategy by the government to control rental prices. The rental increase limitations will be circumstantial and will only be applied when inflation exceeds 2%. Other strategies aim to mobilize available housing and eliminate fraudulent practices related to temporary or tourist rentals.
Additionally, a new register for short-term rentals has come into effect, requiring landlords to obtain a specific code for listing their properties on rental platforms. This initiative seeks to prevent residential properties from being used for unauthorized purposes, such as vacation rentals, and to justify the need for temporary lease agreements, which have often been exploited to bypass the new regulations.
