Spain's Left-Wing Populists Demand Rent Controls
Why a failed policy idea lives on despite its many shortcomings
"Scaffolding on a Large Building Site" by Anthony Shemmans is licensed under CC BY-SA 2.0.
A newly revitalised left-wing populist movement has sprung back to life in Spain. Thousands of young people have been marching to demand affordable housing based on rent controls. There is also talk of organised rent strikes.
Many of the non-government organisations (NGOs) that support the movement were last in the headlines during the anti-austerity protests from 2011 to 2014, when supporter were known as “the indignant ones” (or “indignados” in Spanish).
My feeling about the latest iteration of the movement is much the same as it was a decade ago. The young people taking the streets have every right to be angry: Spain’s housing market has become increasingly dysfunctional. The average age that people leave their parents’ home is above 30.
More than a quarter of Spain’s population live in one of its three biggest urban areas: Madrid (in the autonomous community is named after its biggest city), Barcelona (in the autonomous community of Catalonia) and Valencia (in the autonomous community that has the same name as its largest city).
The average gross monthly income in each autonomous community is €2,381, €2,281 and €1,952, respectively. However, the average rent is €18.7 per square metre in Madrid, €17.4 per square metre in Catalonia and €11.3 per square metre in Valencia. A modest averagely priced flat with 80 square metres would cost a staggering 62% of the average gross income in Madrid and 61% in Catalonia. Property is more affordable in Valencia, but spending 46% of average gross salary on rent is still a huge amount.
Although the protesters are absolutely right to be angry, it is a tragedy that once again the new generation of indignant ones are demanding a failed policy to deal with a serious problem. Although rent controls seem intuitively to make sense, history shows that they fail again and again; and always in the same ways.
It is easy to think through why rent controls are a bad policy. Imagine a widow or widower who won access to a rent-controlled house in a lottery many decades ago. His or her kids have left home. Moving into a new home could prove incredibly expensive, so it is better to stay put, even if some of the rooms stay empty. At the same time, young families and immigrants who have been unsuccessful in the lottery for rent-controlled housing will have to find a way to cope in flats that are much too small for their needs.
Now imagine a derelict flat. In a market economy, someone can buy it for a discount, invest some money in doing it up and then rent it out. It is perfectly possible to work out how much the rent should be by thinking about the total investment; and then comparing the rental income to the amount that could be earned with other investments. If the investor has no say over the rent, then the flat will remain empty. Why invest the money on property when you can invest it elsewhere?
Can we?
Podemos (We Can) is a populist party that grew out of the original protests of the indignant ones. It was founded in 2014 and became one of the key allies of Spain’s Socialist Prime Minister (PM) Pedro Sánchez, who has governed without ever having a reliable majority since 2018.
The party’s fortunes have fallen in recent years as it has been overtaken by a new umbrella organisation for the hard left, called Sumar (Addition), which was founded in 2023, Podemos left Sumar in December 2023 and its four members of parliament (MPs) have sat as independents since then, with an uneasy relationship with their former comrades in Sumar and Sánchez’s coalition.
Seeing young people demanding rent controls has given Podemos something of a lifeline. The party has made two demands for its four MPs to keep voting for Sánchez’s uneasy alliance: legislation to cut rents in the private sector by 40%; and moves to cut Spain’s diplomatic ties with Israel.
Podemos’ demands put the party on a collision course with right-.wing nationalists from Catalonia and the Basque Country that also back Sánchez’s government. Junts (Together) and the Basque Nationalist Party (PNV) are both broadly speaking business friendly, if not exactly economically liberal, although Junts’ credentials were burnished by capital flight during its coup attempt. Sánchez has somehow managed to find a way to keep all three onboard by hedging and fudging all his policy proposals up to now, including a recent bank tax.
The PNV has supported relatively modest new rent regulations, while Junts has abstained. However, the idea that rents should be cut by 40% could well be a bridge too far for both parties, increasing the odds of a snap election in the months ahead if Podemos is serious about its conditions.
Sánchez became PM last year with 179 votes, including Podemos/Sumar, the PNV and Junts, against 171 votes on the other side of the aisle. His former transport minister, José Luis Ábalos, now sits as an independent MP after refusing to resign as a result of a shocking corruption scandal. If Podemos and Ábalos abstained in a vote of no confidence, Sánchez would still have a slim majority (174 vs 171). However, if they actively voted against the Socialist leader, he could lose by two votes.
The PNV has declined to support a vote of no confidence so far, while Junts positively enjoys having the upper hand over the central government in Madrid. Meanwhile, multiple over-lapping corruption scandals continue to get worse by the day, if not the hour. Although we aren’t there yet, there must in theory be a point where the PNV feels more comfortable with a snap election than with the status quo.
The latest polls show the centre-right Popular Party (PP), which has cut deals with the PNV before, is holding its edge with the electorate. However, the main opposition party still falls short of the levels needed for a majority and would probably need hard-right party Vox to govern. Vox is particularly unpopular in the Basque Country and the PNV is very reluctant to make any moves that could be interpreted as helping the hardline Spanish nationalist party.
Meanwhile, the petty squabbling between Podemos and Sumar has gone down like a lead balloon with Spain’s left-wing voters. Support for both parties has collapsed in recent months, opinion polls show.
Real answer
If the new generation of indignant ones are quite right to protest, as mentioned earlier, what should they demand instead of rent controls? Any economist would be able to say that the real answer should involve building more homes - if demand stays constant, massive new supply will tend to bring prices down.
Spain has one of the lowest population density ratios in the whole of Western Europe, although the ratio is much higher in the cities, where blocks of flats are common. It would warm the cockles of my heart to see young people waving “Yes, in my back yard!” (YIMBY) banners. Spain could easily build whole new cities if we ever saw a YIMBY government with a bullet-proof majority (a day dream, I know…).
The terrible recent floods in Valencia and across Southern and Eastern Spain mean that I need to temper the previous statement with a very significant counterpoint; building homes on flood plains is a terrible idea. Sadly, this is a message that the regional government of Murcia on the Mediterranean coast, run by the PP, will continue to ignore. The regional government of the Balearic Islands, also run by the PP, is also building homes in flood plains in Mallorca. These are ridiculous decisions, which are likely to have bad consequences in the future.
Meanwhile, the rise of tourist flats rented out on platforms like Airbnb has created a new problem. Nobody knows the best way of dealing with the issue. I have said it before, and I’ll say it again, but there is a strong case for policy experiments to find the best way of coaxing tourists into your city without pricing young people out of the property market. Nobody knows the answer. Let’s find out!
Leaving aside policy, young people in Spain who want to get onto the property ladder have two interesting options, I think. One is to create massive amounts of value for other people, probably in a digital context, through startups. This will always be much easier in hubs like Madrid or Barcelona (or Lisbon in Portugal) than it will elsewhere. Pitching skills based on storytelling are an interesting part of this world. People who go down this route will be able to get back a small percentage of the value they create in terms of salaries, which will give them a much better chance of buying a flat.
Of course, not everyone will be able to (or will want to) do this. In these cases, the trick will often be to move somewhere much cheaper. Average rental prices plummet to €7.1 per square metre in Castilla la Mancha or Extremadura. At those levels, a modest flat with 80 square metres will cost just €568 a month.
Even with a minimum wage job (€1,323 per month gross), the ratio would fall to 43%. This looks very doable for a couple, particularly when you consider it would be impossible to pay this much on a single minimum wage job in Madrid or Catalonia. Even in Valencia, the autonomous community that is home to the cheapest of Spain’s major cities, a modest averagely priced flat would take 68% of the gross minimum wage each month.
Finally, let me conclude with a slightly deeper point. If progressives want to consistently win elections, they need to find a way of distancing itself from terrible policy calls from angry activists. Progressives in Spain have a great chance to apply this hard-won lesson. Will it happen? I wouldn’t hold my breath!
As always when we discuss populism, the comments are closed - populists are very annoying on the internet. If you subscribe, though, you can always reply to the email. I will reply when I get a chance. See you next week!
Previously on Sharpen Your Axe
The dangers of trusting your intuitions
Capital flight in Catalonia (part one and part two)
Value creation (part one, part two, part three and part four)
Further Reading
Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All by Deirdre Nansen McCloskey
The New Geography of Jobs by Enrico Moretti
The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses by Eric Ries
This essay is released with a CC BY-NY-ND license. Please link to sharpenyouraxe.substack.com if you re-use this material.
Sharpen Your Axe is a project to develop a community who want to think critically about the media, conspiracy theories and current affairs without getting conned by gurus selling fringe views. Please subscribe to get this content in your inbox every week. Shares on social media are appreciated!
If this is the first post you have seen, I recommend starting with the third anniversary post. You can also find an ultra-cheap Kindle book here. If you want to read the book on your phone, tablet or computer, you can download the Kindle software for Android, Apple or Windows for free.
Opinions expressed on Substack and Substack Notes, as well as on Bluesky, Mastodon and X (formerly Twitter) are those of Rupert Cocke as an individual and do not reflect the opinions or views of the organization where he works or its subsidiaries.