Spain plans 100% house tax on foreigners: Will it fix the housing crisis?

Last week Spain’s Socialist Prime Minister Pedro Sanchez announced several measures, including a 100 percent tax on the value of homes bought by foreigners, to tackle the country’s housing crisis.

Sanchez wants to stop people who are not citizens of the European Union from purchasing real estate there. According to Sanchez, “Spain’s housing should be for Spanish people to live in, as well as for migrants who come here to work, build a life, and contribute to the development and prosperity of our country,” making reference to those who invest in housing.

In a number of cities, including Barcelona and Seville, people have started to protest against tourists because of housing shortages and rising prices, which are thought to be contributing factors to the crisis.

How serious is the housing crisis, and will the new measures address the issue that previous governments have neglected to address?

What is Spain’s new property tax proposal?

Sanchez has proposed 12 steps to tackle the country’s strained housing market, which saw some of Europe’s highest price increases last year at 8.3 percent.

The 100 percent tax will affect overseas buyers, who bought 27, 000 apartments in 2023. In the third quarter of 2024, about 15 percent of all real estate properties were purchased by foreigners, according to the Association of Registrars.

“They]overseas buyers] did so not to live, but to speculate, to make money with them, something that in the context of scarcity we cannot afford”, Sanchez said at the forum, “Housing, the Fifth Pillar of the Welfare State”, in Madrid on Monday.

The Spanish leader also suggested putting more money on vacation rentals to ensure that tourists’ rented apartments were treated “like a business.” “It is not fair that those who own three, four, five apartments for short-term rental pay less tax than hotels”, Sanchez said.

Other proposals include tax breaks and incentives for landlords to set aside rents in high-demand areas and to offer affordable housing, particularly to young people.

What other measures has he announced?

Sanchez, who leads the left-wing coalition government led by his Socialist Workers’ Party, also intends to change laws to make land available for private construction more quickly and easily accessible.

About 600, 000 new homes are needed by the end of 2025 but some 90, 000 homes are being built each year, according to the Bank of Spain.

Sanchez emphasized that housing was the top priority of his government, but he was careful to point out that the solution was elusive. The Spanish prime minister announced the creation of “thousands and thousands” of affordable social housing units by transferring two million square meters of land to a new, public company.

Government subsidies are provided for government-owned or managed buildings, as well as nonprofit organizations.

Sanchez stated that social housing constitutes just 2.5 percent of Spain’s market, far below the space in other major EU countries, such as 14 percent in France and 34 percent in the Netherlands.

Sanchez added that the government plans to stop fraud in holiday rentals, such as those on platforms like Airbnb, without giving a detailed plan.

Fraud in Spain’s holiday rental market includes unlicensed rentals that violate legal or safety standards, fake property listings, and unauthorised subletting of properties to tourists without the owners’ permission.

Spanish authorities opened an investigation into Airbnb in December 2024 after failing to remove thousands of erroneous rental offers from its website.

Meanwhile, the golden visa, introduced in 2013, would be eliminated. By purchasing real estate projects worth at least 500 000 euros (roughly $513 000), this program granted wealthy non-EU investors the right to obtain residency.

What characteristics and people will it most impact?

Individuals who frequently use the properties as vacation or investment homes as they are citizens or residents of the European Union will be subject to the tax.

In Spain, foreign buyers account for about 10% of all acquisitions by non-residents in the final quarter of 2023, making up the top 10% of all foreign buyers.

Shortage of housing and high rentals mean that people have been priced out of the market, with the rate of homelessness rising by 24 percent since 2012 to 28, 000 people, according to official figures.

Spain’s new measures aim to help residents, especially those in cities and coastal areas such as the Balearic Islands, and the Canary Islands, where rents have surged due to high demand and limited supply.

When will it go into effect?

The precise date for implementing the tax on foreign buyers and other proposed measures hasn’t been specified.

The proposals require approval in Spain’s fragmented parliament, where Sanchez’s minority coalition may face a challenge in passing legislation.

How affordable is housing in Spain?

In cities like Madrid, Barcelona, and cities along the Mediterranean coast, housing prices have increased significantly in recent years.

Rents in the country increased by 11 percent in 2024, according to real estate portal Idealista.

A one-bedroom flat in Barcelona’s city centre costs an average of $1, 313 per month, and $989 per month outside the city centre. Over the past ten years, the average rent in Barcelona has increased by 53 percent.

Spanish cities are still less expensive than a number of Western European cities, where the cost of living crisis has increased due to high rental costs and housing costs.

In London, which has also been facing a housing crisis, the average rent for a one-bedroom apartment was $2, 738 a month in December 2024.

According to a report from London’s City Hall, the city’s high rental costs were fueled by its proximity to a major industrial and student population, which in turn raises the demand for housing. Rents have fallen to record levels as a result of this demand, which is matched by a significant decline in supply of rental properties since 2020.

Sanchez cited a 48% increase in housing costs across Europe over the past ten years, nearly double the increase in household income over the same time period.

“The West faces a decisive challenge: not to become a society divided into two classes, that of rich owners and poor tenants”, he said.

“We are facing a serious problem, with enormous social and economic implications, which requires a decisive response from society as a whole, with public institutions at the forefront”, he said, according to comments published by the government.

Is tourism the only factor influencing the housing crisis?

With more than 94 million tourists expected in 2024, Spain is the second-most traveled nation in the world. Tourism generated some $200bn in revenue, or 13 percent of the country’s gross domestic product (GDP).

Residents in Spain have complained about mass tourism, including gentrification, increased living costs and a spike in rowdy behaviour by party-seeking foreigners.

Tourism is not the only factor causing Spain’s housing crisis, though.

Spain’s housing bust of 2008 and the subsequent financial crisis also worsened the problem. Between 2008 and 2014 Spain experienced a major financial crisis, which also included a prolonged real estate crash.

According to a working paper from the European Central Bank, “by 2015, house prices had dropped by a third from the 2008 peak, and essentially no new homes were being constructed.”

The COVID-19 pandemic, which has increased construction costs significantly since then, exacerbated the crisis.

Young people living with their parents for longer periods, which slows down new residential projects, are hampered by the high youth unemployment rate of 26%, which means that. Nearly two-thirds of Spanish young people aged between 18 and 34 live with their parents.

Source: Aljazeera