New Spanish government favours housing market intervention and higher taxes, but looks weak and unstable

Pedro Sánchez (left), Pablo Iglesias (right)

Spain’s new government includes a hard-left party that has made housing affordability one of its signature issues, so we can expect more intervention in the housing market, if this coalition government survives long enough.

The left wing coalition of centre-left Socialists led by Pedro Sanchez, and hard left Podemitas led by Pablo Iglesias, managed to cobble together a parliamentary majority of just two seats last Tuesday (7th Jan) to vote for the investiture of Spain’s first coalition government since before the Civil War.

There were 18 abstentions, including the Catalan separatists of the ERC party, which means the coalition will be a hostage to conflicting interests from day one, and could be brought down at any time.

The opposition from the Spanish right was highly partisan and borderline hysterical, so cross-party support for important legislation in the national interest looks unlikely.

The Socialists-Podemos coalition itself looks unstable, with bad blood on both sides papered over by the coalition agreement they have signed. The government is barely a week old, and the bickering over ministerial appointments has already started.

podemos alberto garzon communist minister of spain
Alberto Garzón, the new Minister for Consumer Affairs, at a Spanish Communist party rally

The presence of Podemos in the government as the junior partner with Iglesias as Vice President, and four other ministers, including his wife as Minister for Equality, puts Marxists in government for the first time since the civil war.

The new Minister for Consumer Affairs – Communist party member Alberto Garzón (pictured) – has praised Cuba’s model of consumerism on Twitter (subsequently deleted) in a sign that ideology trumps reality, in his mind at least. I’ve lived in Cuba, and I can tell you there was no consumerism because nobody had any money, and there was nothing to buy. It was a different story for tourists and the Communist Party elite, of course.

Housing market intervention

As housing affordability was a key campaign issue for Podemos, it’s reasonable to expect them to push the government further left and intervene more heavily in the housing market than the Socialists might have on their own.

Amongst other things, Podemos want to impose rent controls, prevent evictions, protect squatters, go after investors whom they see as “speculators and vulture funds”, and clamp down on tourist rentals, though not all of their aspirations are reflected in the coalition agreement. But I expect there will be a fresh effort from this government to facilitate some form of rent controls in some areas, and support regions who introduce greater restrictions on tourist rentals.

Rent controls will do little to resolve housing affordability in areas where it’s actually a problem, mainly the big cities and Balearic islands. What would help reduce the problem would be fixing the dysfunction town planning system, and stimulating the supply of new housing that meets people’s needs, but they are not talking about that.

There is a good argument to be made for regulating holiday rentals where they are problematic, but there is a risk that this government will be hostile to all forms of holiday rentals, even in areas where they cause no social harm, and help the local economy. However, holiday-rentals are already largely regulated at the regional level, so I’m not expecting much from Madrid that will make life any more difficult for holiday-home owners looking to rent out their properties to tourists when not in residence.

Podemos also hate the Spanish Golden Visa residency by property investment scheme, so that might be reviewed by this government.

Higher taxes on Spanish property

Spending on left-wing causes will go up significantly, but Euro-membership means Brussels controls the deficit, so taxpayers will have to take the strain. Taxes will go up on income for sure, and likely go up on property ownership, and property transactions, one way or another. Tax breaks for real estate investment trusts (SOCIMIs) are in the sights of Podemos, and company structures for property investment will also be given hostile treatment. The Spanish tax authorities, who already have a bad reputation for playing dirty, will be under pressure to go in even harder, and be more unreasonable with tax payers. The investment case for Spanish property will suffer as a consequence.

In conclusion…..

The new government has a big cabinet with four vice presidents and 18 ministers, compared to one VP and around 12 ministers that was typical in previous governments. Big cabinets tend to be more fractious and unwieldy, especially if made up of two parties competing for the same voters. So this looks to me like a fragile, unstable government that does not command its own majority, and will pay dearly for the passive-aggressive support it gets from the Catalan separatists of ERC. It’s hard to see how it will survive the full term.

Whilst it lasts, I expect the policies of this government to be a drag on Spanish economic growth, and undermine the ability of locals to afford housing, but not in a big way. I’m expecting taxes to go up, maybe even on property ownership and transactions, which would affect second-home owners from abroad. I’m expecting government bitching about holiday-rentals, but without much teeth as the regions already control the legislation on that front. On balance, I expect the tone of this government to be slightly hostile towards business, property ownership, and foreign investment, none of which will boost confidence in the Spanish housing market already showing signs of slowdown. Put another way, in my opinion, the market now faces a light headwind in the form of the new Spanish government.

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