MADRID: A Catalan law capping rents in areas with soaring demand, aimed at making the Spanish region’s residential rental market more affordable is having the opposite effect and shrinking it, a study showed on Thursday.

The number of homes available to rent in price-regulated districts dropped 12% from September – when the law took effect – to February, property portal Idealista said in a study of the impact of the law, which it estimates affects more than 90% of Catalonia‘s rental stock.

“The short-term impact is already hurting those who want to rent a property,” Idealista said in a statement. “Tenants will… find far less on offer and prices similar to those before the regulation law.”

Madrid’s rental market increased 2% over the same period while prices fell 3% in the capital region, compared with a 2% fall in the 61 Catalan districts affected by the price controls.

“Exclusively attributing the rental market’s contraction to the rent-containment law could be considered bold and possibly unfounded given the current situation,” a spokeswoman for Catalonia’s Housing department said, adding that Madrid had more tourist accommodation to pass into the residential market than Catalonia.

Associations of landlords and investors have decried Catalonia’s decision to limit rents amid a pandemic-induced downturn, saying it would dissuade people from renting out properties in a region known for attracting both foreign real estate investors and tourists.

As Spain‘s coalition government wrangles over a draft housing law meant to improve the social housing market, some local authorities have opted to pursue their own policies.

The Balearic Islands’ regional government said last week it would expropriate 56 empty properties owned by banks and investment funds in Mallorca, Ibiza and Menorca and turn them into social housing, compensating landlords in exchange. The plan has met with obstacles and caused controversy.

Four more regions including the Basque Country, Canary Islands and Catalonia have passed or are studying laws allowing authorities to convert private properties into social housing if they have been empty for six months to two years.

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