Free Market Fundamentalist

Spain Tries to Solve Yesterday’s Housing Crisis

Prices are already down due to the pandemic.

Barcelona Spain
Buildings in Barcelona, Spain, December 10, 2017 (Unsplash/Marco Da Silva)

Spain’s ruling left-wing parties have agreed various measures to make housing more affordable, including a rent cap and higher property taxes.

The proposals are unlikely to be effected in areas ruled by conservatives, and they are right to block them. The pandemic has already made housing more affordable in Spain. The country doesn’t need the government to step in.

Prices are down

The socialists point out rents doubled between 2014 and 2019, but there’s a reason they don’t give the figure for 2020: prices fell dramatically during the pandemic, when tourists stayed away and expats (like me) moved out.

Rents are down 8 percent nationally. The Balearic Islands, Catalonia and Madrid, the three most tourism-dependent regions, have seen the steepest declines. Catalonia and Madrid also have the most international companies.

Sales have been hurt even more. Homes are now sold for the same prices as they were in 2011.

If there’s a housing crisis in Spain, it’s not one of affordability.

Apart

It puts Spain apart from the rest of the European Union, where housing prices have continued to rise. Only Cyprus, Greece and Italy have seen similar declines in the last year.

There are several reasons:

  • The tourism dependency of these countries. Without competition from tourists, locals have been able to negotiate better prices.
  • Rural areas are depopulating, pulling down national price averages.
  • It’s relatively easy to get a mortgage in Spain.
  • Spanish municipalities are fairly quick to approve developments when demand is high, but also quick to put construction on hold when there is a crisis.

It all makes the Spanish housing market more elastic. Or more volatile, depending on your point of view.

Proposals

The center-left Socialist Party and far-left Podemos (We Can) are proposing four major policies:

  1. Monthly housing subsidies of €250 for under-35s with a yearly income below €23,725, capped at €6,000 over a lifetime.
  2. Tax incentives for small landlords to forego rent increases.
  3. Surcharge of 150 percent on property tax for vacant homes if the owner has at least four houses to her or his name.
  4. Rent cap for large landlords in areas where rents have risen more than 5 points above consumer prices in the last five years and where rents are 30 percent above the average household income.

Those conditions are met in coastal areas and the city of Madrid.

Unlikely to be implemented

The Socialists and Podemos form a minority government. Even if their proposals get through Congress with support from left-leaning Basque and Catalan nationalists, they are unlikely to be implemented nationwide.

Property tax is levied locally. Rent policy is the responsibility of the regions. The center-right People’s Party controls five out of seventeen regions and four of Spain’s largest cities, including Madrid. It opposes all the government’s proposals.

Catalonia, which is controlled by a coalition of left- and right-wing separatists, has its own housing policies.

The one thing that may be rolled out nationally is the €250 subsidy, but that would benefit just 40,000 to 50,000 Spaniards per year.

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