Two Years On: A Breakdown of a Deepening Rental Crisis

Two Years Since the Housing Law: What’s Happened?

Two years after the introduction of Spain’s Housing Law in 2023, the country is facing a deepening rental crisis. Instead of easing pressure, the law has contributed to a significant imbalance between supply and demand.

Between May 2023 and April 2025, the number of available long-term rental properties dropped by 17%, while demand soared by 79% nationwide. Rents have climbed dramatically, with an average national increase of 24%. That combination, shrinking supply alongside surging demand, is precisely the dynamic that rent caps and tenant protections were designed to prevent, yet two years on it has intensified rather than eased.

Where Is the Impact Being Felt Most?

Demand has spiked in several key Spanish cities, most notably:

  • Bilbao: +194% increase in demand
  • Seville: +142%
  • Palma: +109%
  • Barcelona: +99%

Even in more stable markets like Madrid, Alicante, Valencia, and Málaga, demand continues to outpace available rental stock, keeping pressure on pricing. For coastal markets like the Costa del Sol, this national squeeze compounds an already tight long-term rental supply, since owners here can often choose between long-term tenants and considerably higher yielding seasonal or tourist lets.

Shift Towards Seasonal Rentals

As regulation increases and rental price caps become more stringent, many property owners are exiting the long-term market. Seasonal rentals have risen by 25% year-on-year and now represent 14% of all rental offerings in Spain.

This migration toward short-term leasing is often driven by fewer legal restrictions, higher yields, and the growing tourist economy, especially in regions like the Costa del Sol and Balearic Islands. We covered the detail of how those seasonal letting rules are changing on the coast in our report on short-term rental rules on the Costa del Sol, which sets out what buyers and existing owners now need to comply with.

What Is the Government Doing?

The government has signalled its intention to regulate both seasonal and room rentals more closely, hoping to curb landlord circumvention of the Housing Law. However, many in the real estate industry argue that tighter controls may further reduce supply and push investors away from the long-term sector entirely.

Calls for incentive-driven reform continue, with suggestions to offer tax benefits and legal clarity to responsible long-term landlords rather than relying solely on restrictive policy measures. Whether any of these proposals gain traction will likely determine if the long-term rental market stabilises or continues shrinking over the next two years.

For anyone buying property on the coast with rental income in mind, this backdrop matters more than the national headlines suggest. A market where long-term supply keeps shrinking while seasonal demand keeps growing tends to reward owners who understand the local regulatory picture rather than those simply chasing the highest advertised yield.

Quick Takeaways

  • 17% decrease in long-term rental supply
  • 79% surge in nationwide rental demand
  • 24% increase in average rents over two years
  • 14% of the rental market now seasonal
  • Government plans to expand regulation on short-term lets

Two years in, the Housing Law’s central paradox remains unresolved: measures intended to protect long-term tenants have coincided with fewer long-term properties being offered at all, pushing many landlords toward seasonal and short-term lets instead. Until that imbalance is addressed directly, further tightening of regulation seems more likely to accelerate the shift than reverse it.

James Evans
in