PSOE Proposes Housing Tax Reforms Amid Rising Concerns Over Affordability in Spain
The Spanish government's recent housing legislation seeks to increase taxes on vacation rentals and foreign buyers while addressing the country's housing crisis.
The Spanish Socialist Workers' Party (PSOE) has introduced a legislative proposal in the Congress aimed at promoting affordable rental housing.
This initiative includes measures to increase taxes on short-term vacation rentals, penalize vacant properties, restrict purchases by non-EU foreign buyers, and incentivize price reductions in the housing market.
Despite these intentions, the proposals face significant opposition in the Chamber of Deputies, even from the coalition party Sumar, which considers the measures insufficiently ambitious.
Currently, the tax pressure on housing in Spain is among the highest in Europe.
According to a report by the Institute of Economic Studies (IEE), tax revenues from housing constitute approximately 3.5% of the country's GDP, in stark contrast to public spending on housing policies, which accounts for just 0.5% of GDP. This discrepancy highlights the substantial revenue derived from housing taxation compared to the limited financial commitment to public housing initiatives.
The PSOE's proposal includes raising the Value Added Tax (VAT) on vacation rentals to 21%, with the aim of encouraging owners to convert these properties into residential rentals.
The trend of increased profitability in the vacation rental sector has led to an estimated 50,000 new vacation rentals emerging in 2024, as reported by the Bank of Spain.
Additionally, the proposed legislation includes the introduction of a new tax on property purchases by non-EU foreigners and non-residents, despite such transactions representing a small fraction of the overall housing market.
Since 2022, transactions from this demographic have amounted to around 60,000 per year, making up only 8.4% of total sales.
However, these figures rise in tourist-heavy regions, such as the Mediterranean coast and the islands, where demand for second homes from non-residents is high.
The ownership of properties by non-resident foreigners has reached over half a million, constituting around 2% of the total housing stock in Spain.
In tourist-centric provinces like Alicante and Málaga, this percentage is approximately 11% and 8.5%, respectively.
Other proposed measures include increasing taxation on Real Estate Investment Trusts (SOCIMIs) from 15% to 25%, unless directed toward affordable rentals; enhancing tax deductions in Personal Income Tax (IRPF) for reducing rents in areas not officially classified as strained; providing additional deductions for energy-efficient home renovations; and raising taxes on vacant properties.
The intention behind taxing vacant homes is to discourage ownership of unoccupied properties, yet many vacant homes are located in less populous areas where demand is not excessive.
Less than 10% of vacant homes are situated in large municipalities with populations exceeding 250,000, which tend to experience housing shortages.
Former director of the Bank of Spain's research service, Ángel Gavilán, indicated that repurposing empty properties and vacation rentals to meet residential needs in cities like Madrid would only accommodate approximately 14.3% of total households—around 390,000 homes, while in Barcelona, it would accommodate just 13.2% or approximately 310,000 households.
This raises questions around the effectiveness of the proposed measures.
The Association of Owners of Rental Housing (ASVAL) estimates a structural housing deficit in Spain will reach about 2.2 million units between 2025 and 2040.
The IEE has stated that raising the tax burden on housing may not effectively increase housing supply, noting that approximately 25% of the final price of a protected home is already allocated to taxes.
The property tax (IBI) is the leading revenue generator in this sector, expected to yield around 14 billion euros in 2024, which constitutes nearly 30% of total housing tax revenue.
The VAT accounts for another 11 billion euros, followed by income tax (8 billion euros).
Additional taxes include those on property transfers, corporate entities, legal documents, wealth, along with local and regional taxes like the urban IBI, municipal capital gains tax, construction-related taxes, and various licenses, covering every stage from land acquisition to construction, development, and property transfer.
This initiative includes measures to increase taxes on short-term vacation rentals, penalize vacant properties, restrict purchases by non-EU foreign buyers, and incentivize price reductions in the housing market.
Despite these intentions, the proposals face significant opposition in the Chamber of Deputies, even from the coalition party Sumar, which considers the measures insufficiently ambitious.
Currently, the tax pressure on housing in Spain is among the highest in Europe.
According to a report by the Institute of Economic Studies (IEE), tax revenues from housing constitute approximately 3.5% of the country's GDP, in stark contrast to public spending on housing policies, which accounts for just 0.5% of GDP. This discrepancy highlights the substantial revenue derived from housing taxation compared to the limited financial commitment to public housing initiatives.
The PSOE's proposal includes raising the Value Added Tax (VAT) on vacation rentals to 21%, with the aim of encouraging owners to convert these properties into residential rentals.
The trend of increased profitability in the vacation rental sector has led to an estimated 50,000 new vacation rentals emerging in 2024, as reported by the Bank of Spain.
Additionally, the proposed legislation includes the introduction of a new tax on property purchases by non-EU foreigners and non-residents, despite such transactions representing a small fraction of the overall housing market.
Since 2022, transactions from this demographic have amounted to around 60,000 per year, making up only 8.4% of total sales.
However, these figures rise in tourist-heavy regions, such as the Mediterranean coast and the islands, where demand for second homes from non-residents is high.
The ownership of properties by non-resident foreigners has reached over half a million, constituting around 2% of the total housing stock in Spain.
In tourist-centric provinces like Alicante and Málaga, this percentage is approximately 11% and 8.5%, respectively.
Other proposed measures include increasing taxation on Real Estate Investment Trusts (SOCIMIs) from 15% to 25%, unless directed toward affordable rentals; enhancing tax deductions in Personal Income Tax (IRPF) for reducing rents in areas not officially classified as strained; providing additional deductions for energy-efficient home renovations; and raising taxes on vacant properties.
The intention behind taxing vacant homes is to discourage ownership of unoccupied properties, yet many vacant homes are located in less populous areas where demand is not excessive.
Less than 10% of vacant homes are situated in large municipalities with populations exceeding 250,000, which tend to experience housing shortages.
Former director of the Bank of Spain's research service, Ángel Gavilán, indicated that repurposing empty properties and vacation rentals to meet residential needs in cities like Madrid would only accommodate approximately 14.3% of total households—around 390,000 homes, while in Barcelona, it would accommodate just 13.2% or approximately 310,000 households.
This raises questions around the effectiveness of the proposed measures.
The Association of Owners of Rental Housing (ASVAL) estimates a structural housing deficit in Spain will reach about 2.2 million units between 2025 and 2040.
The IEE has stated that raising the tax burden on housing may not effectively increase housing supply, noting that approximately 25% of the final price of a protected home is already allocated to taxes.
The property tax (IBI) is the leading revenue generator in this sector, expected to yield around 14 billion euros in 2024, which constitutes nearly 30% of total housing tax revenue.
The VAT accounts for another 11 billion euros, followed by income tax (8 billion euros).
Additional taxes include those on property transfers, corporate entities, legal documents, wealth, along with local and regional taxes like the urban IBI, municipal capital gains tax, construction-related taxes, and various licenses, covering every stage from land acquisition to construction, development, and property transfer.
Translation:
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