Spain’s conservative Partido Popular (PP) has won a thumping electoral victory over the hapless Socialists. Is this good news for the property market?
Yes, to the extent that nobody could be less effective than the Socialists at fixing Spain’s housing crisis. On the other hand, the PP has been tight-lipped about its plans so it’s difficult to know what to expect. Worryingly, some of the ideas the have announced hardly fill me with confidence.
For example, re-introducing mortgage tax relief is the PP’s flagship policy, but abolishing it was about the only sensible thing the Socialists ever did. What Spain needs is more affordable housing (lower prices) and more families renting, not public subsidies for buyers at the expense of everyone else.
This is what happens when you encourage home-ownership through the tax code (owner-occupiers in blue, rental in red). You destroy the rental market. Back in 1970 about a third of Spaniards lived in rented accomodation; now its less than 10pc.
Beyond subsidising buyers the PP have also announced plans to:
- Extend the reduced-rate VAT (4pc) on new homes throughout 2012. At present the special rate is due to expire at the end of this year and go back to 8pc.
- Reduce the sales tax on homes that are not new (Impuesto de Transmisiones Tatrimoniales ITP)
- Develop vague plans to “share risks” with the private sector to get mortgage credit flowing again and help the banks off-load their housing stocks.
Of course these measures on their own won’t fix the problem, especially not the glut of holiday-homes on the coast.
To do that they need to do:
- Get prices down further (pressure on banks)
- Get mortgage credit flowing again (pressure on banks)
- Make Spain more attractive to foreign buyers through stronger property rights
The PP have made some noises about 1 and 2, but nothing about 3. But foreign buyers, especially the British, won’t be back in force until they deal with 3.
To stimulate domestic demand they urgently need to get the economy growing and create jobs so that Spaniards can afford to buy homes. To create jobs they need to liberalise the economy, especially the labour markets. At least they seem to understand the problem, which is more than could be said of the Socialists. As a recent article in the FT says:
Mr Rajoy has unveiled a 100-point programme of reforms, almost half of them dealing with the economy. He says the party’s “obsession” is to create jobs with the help of incentives for small businesses, changes to labour laws and a complete overhaul of a collective bargaining system that dates back to the Franco era.
So in the absence of detailed plans to fix Spain’s property crisis, the Government-in-waiting have made some worrying noises, and some reassuring noises. A change of government with a solid democratic mandate is to be welcomed, but it’s still too early to predict whether the PP will do any better than the Socialists. For the time being, though, I’m prepared to give them the benefit of the doubt.