Following a press conference on January 13, during which Spain’s Prime Minister Pedro Sanchez announced a raft of proposals to improve the situation with housing, there has been panic and controversy.
The first thing that must be said is that people need to take a deep breath. None of these measures are currently law and, given the gridlock in the current parliament, most of them won’t make it through in their original form.
Also, many of the measures in and of themselves are not hugely controversial. They are by and large cosmetic measures that will allow the government to be seen to do something without doing anything politically costly.
For instance, Socimis – corporate real estate investment societies – would lose their tax benefit unless they are investing in affordable housing. This is likely to have little effect on the rental market since there’s not much profit to be had in affordable housing.
If they haven’t invested in affordable housing up to now, that’s unlikely to change. But it gives the appearance of taking on speculators. There will be complaints from the Socimi backers, which will burnish the government’s political credentials with their base. However, the reform just means that they will pay tax at the same rate as other corporate entities.
Of course, this is the overall model being followed by all political parties in Spain – make noise, do little. They want maximum electoral benefits for minimal effort or risk. Nobody wants to go up against any sector that wields any power. As a result, there’s a lot of dancing around the edges and big announcements for small beans.
The most controversial and rage-inducing point in Sanchez’ announcement was that they would seek to raise the tax on house purchases by non-EU foreigners to 100% of the price of the house. Doubling the price of a house to discourage speculative purchases of property is, of course, insane and would never make it through Parliament.
However, the wording in Spanish is a bit ambiguous – and maybe that’s intentional – but it can be read as suggesting a 100% increase in the tax, which would raise it from 6.5% to 13%. Given that the official release from the government points to Canada and Denmark as models, this would seem the more realistic interpretation.
Canada, for instance, has a speculation tax on foreign purchases of 25%. Denmark imposes a 20% tax on luxury properties, though they don’t distinguish in terms of the nationality of the buyer.
Now, that’s not to say that this isn’t the wrong direction. The problem of high housing costs in Spain remains a problem of lack of construction, not of foreign speculators buying up all the property.
Most importantly, it’s almost certainly not going to happen. There’s the gridlock in Parliament mentioned above. The EU itself also has rules on the kinds of taxes that are permissible. A discriminatory tax based on nationality would be in violation of Article 63 of the TFEU.
Lastly, and perhaps most importantly, land transfer taxes are determined at the regional and not the national level. Most regional governments have been busy pledging to reduce this tax.
That’s not to say that the Spanish government doesn’t have levers to pressure regional governments into doing their bidding. But the idea of going into battle with regional governments over a tax that wouldn’t pass through Parliament, is a non-starter.
This is about sending up trial balloons to measure reactions to the idea of an increase in this tax. Irresponsible given the potential impact? Yes. An announcement of an actual policy that is coming in the near future? No.
To be balanced, it is worth noting that there are positive measures in the 12 housing reform proposals that should be considered. For instance, Sanchez proposed a plan to modernize, make more efficient, rapid, and sustainable the construction industry.
This program is called PERTE and would be in Valencia as a contribution to increasing the pace of reconstruction in the city after this winter’s tragic storm. As always, the devil is in the details as to whether this is a white elephant or a real program that will make a difference.
To facilitate long term rentals, the government proposes giving landlords a 100% tax rebate if they provide it at affordable rates. This too could provide an impulse to the rental market and is much preferable to the model that penalizes landlords and makes them not want to rent at all.
Even the tax increases on Airbnb’s seems not unreasonable. As was reported in Euroweeklynews.com, “platforms like Airbnb will face higher taxes, reclassifying tourist apartments as businesses to match hotel taxation levels.”
There needs to be a recognition of the different service offerings and market niches filled by hotels and Airbnb rentals. But who can deny that both are businesses and should be treated as such. Anything else is an unfair subsidy to one over the other.
Likewise, the government is proposing to reestablish a Ministry of Housing, which was eliminated during the post-2008 housing crisis. Given the Spain’s percentage of social housing is the lowest on the continent and that there is a housing crisis, having a Ministry of Housing is not a bad idea. Nor that it should do something with the housing sitting empty that it inherited from bad banks.
However, it must also be said that these proposals will most certainly not resolve the deficit in housing. According to a Caixa Bank study at the end of 2024, the gap between new households and home building permits remained at about 30,000.
That is better than it was during the post-Covid explosion of household growth, when the gap was 90,000/year. But it’s still not good. It remains to be seen if toying around the edges and “sending signals” about cracking down on a number of areas that in themselves make little difference, will be sufficient.
It seems unlikely and the question remains whether any political party in Spain has the courage to deal with the problem. We need to move beyond scapegoating wealth generators or low income tenants as being the source of the problem.
As well, to have an evidence-based attitude to dealing with the problem, we need to avoid panic responses to government proposals. Most measures have been tried in other places in the world – did they work or not? If yes or no, why?
View full article in Terra Meridiana