Rentals: between Commander Chávez and the Generalissimo

15 days ago, the Government seized the “extraordinary benefits” of the electricity companies to lower the price of the electricity bill. This week, the agreement closed between the PSOE and United We Can to reduce the price of rents and facilitate the access of young people to this type of residence constitutes another severe blow against private property and free enterprise. The justification of the measures proposed by the government coalition and their implementation are very similar to those of the Law of Regularization and Control of Housing Leases of the Commander Chávez and worthy heirs of the regulations on rents introduced by the Generalissimo in 1946.

The obligation to allocate 30% of promotions to protected housing and half of that percentage to social rent; the invitation to impose a confiscatory surcharge of 150% on the IBI of the empty flats; the control of the prices in the leases of those who own more than 10 houses in the “stressed areas of the market” … constitute a suffocating political intervention environment in which the property right, already very eroded in the urban field, becomes nominal. Its exercise is subject to the objectives and political interests of the Government; that is, to the arbitrariness and discretion of power.

Private property is the foundation of individual freedom and of the market economy. Its precariousness based on arbitrary criteria is lethal for the development of economic activity. When their use and enjoyment are subject tos whims of the Executive and peripheral administrations, the incentives to take risks and create wealth collapse. At this time, the action of the social-communist alliance sends a clear message: no one can trust that their property is respected and protected in Spain. But the story does not end there.

Private property is the foundation of individual freedom and the market economy

The government coalition has decided to grant a check for 250 euros per month to the employed population between 18 and 35 to facilitate their access to renting a home. This has a billionaire budget costor, but it also generates other problems.

In the event that this initiative were to be successful and stimulate the demand for rentals, their prices would rise because some additional incentives are added to the scarce incentives that already exist for their supply to grow. If many owners do not rent their apartments due to the proven impossibility of evicting their tenants in a short period of time in the event of non-payment, much less will they do so due to the high possibility that they will become occupation and enjoy the protection of the Government; phenomenon that has become structural.

For this reason, tax deductions for rental income promised by the government will be ineffective because they do not compensate for the high potential costs faced by the landlord. That has been the reason why the ones in force so far have not worked.

Neither will the threats to impose confiscatory taxation on vacant homes in an environment of legal uncertainty and without the owners having any guarantee of obtaining a minimum net return on the lease.

Finally, the control of the price of the rents for the big tenders of houses, forcing that the promoters allocate a part of the buildable land to social housing together with distrust of the possible future actions of the Cabinet will have two consequences.

The first is that real estate investment for that purpose will be discouraged. The second is that new construction promotions for both selling and leasing will tend to fall. The reason is obvious: the risk of making an unprofitable investment in both cases skyrockets. Consequently, the availability of housing will decrease and, also, the demand for direct employment in construction and indirect employment in its auxiliary industry.

As he wrote Ayn RandOne of the few differences between communism and fascism is that the former abolishes private property and the latter puts it at the service of the government’s wishes. From this perspective, the Rent Law that is intended to be approved fits into the fascist typology and it will also achieve objectives diametrically opposed to those pursued: there will be fewer and more expensive rental homes.

The Cabinet’s explanation is discounted: the cause of the failure will not have been the massive distortion caused by its intervention in the functioning of the market but its insufficient intensity.

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