Despite Spain having one of the highest property tax burdens in Europe—housing-related taxation currently accounts for 3.5% of the country’s GDP—the governing Socialist party (PSOE) is pushing for even higher levies.
In a newly tabled legislative proposal in the Spanish parliament, the Socialists aim to cool a red-hot rental market and increase the supply of affordable homes through a battery of tax-driven measures, including targeting tourist flats, foreign buyers and vacant dwellings.
A legislative push with slim prospects
The new proposal, presented this week in Congress, seeks to promote more affordable rentals by discouraging alternative uses of housing—from short-term tourism to “speculative” holding—through fiscal disincentives. However, the bill has found little support among other parties. Even Sumar, the hard-left coalition partner to PSOE, has described the initiative as underwhelming—not enough to radically shift supply dynamics—and its parliamentary future looks uncertain.
Still, the content of the proposal gives clear insight into PSOE’s approach: intervene through taxation.
Tourist flats, foreign buyers, vacant homes—in the crosshairs
The cornerstone of the bill is a plan to raise the VAT on tourist homes to the general rate of 21%. The objective is to push owners toward the less lucrative but more socially beneficial long-term rental market. According to the Bank of Spain, the profitability of short-term rentals has sparked the reallocation of around 50,000 homes to the tourist market in 2024 alone.
Foreign non-resident buyers, while only responsible for around 8.4% of total home purchases in recent years, are also targeted. PSOE proposes a new tax specifically for extra-EU nationals purchasing property, particularly in high-demand coastal and island regions where the concentration of foreign ownership is highest—such as Alicante (11%) and Málaga (8.5%).
SOCIMIs and empty homes also face hikes
The Socialist bill also revives the idea of tightening the tax regime for Spanish real estate investment trusts (SOCIMIs), which would see their corporate tax rate raised from 15% to 25%, unless they rent housing at regulated, affordable levels.
Other suggested measures include:
- Expanding income tax deductions (IRPF) for landlords lowering rents, not just in “stressed” markets but nationwide.
- Enhancing tax incentives for energy-efficiency renovations.
- Penalising vacant homes with higher taxation—despite the fact that only about 10% of vacant homes are located in major cities where housing scarcity is most acute.
This last measure has drawn criticism for being poorly targeted: “The problem is, houses can’t be moved,” quipped Ángel Gavilán, outgoing Head of Research at the Bank of Spain. According to the bank’s analysis, assigning all short-term rentals and vacant homes to the long-term market would barely house 13–14% of urban households in high-demand cities like Madrid and Barcelona.
A heavy tax load—without proportional housing expenditure
Critics of the plan point out that the state’s tax take from the housing sector already far outweighs its financial support for housing policy. According to the Instituto de Estudios Económicos (IEE), a business-aligned think tank, property-related taxes represent roughly 3.5% of Spain’s GDP, while total public spending on housing and rental subsidies accounts for just 0.5%.
“The data highlight a significant imbalance,” the IEE states. “Housing is a major revenue source for public administrations, with limited reinvestment in housing policy. The state is more inclined to distort the market through tax than to support it structurally.”
An already taxed-to-the-rooftop sector
Spain’s property market is subject to a dense web of taxes across every phase—from land acquisition, permitting, and construction to sales and ownership. These include:
- Property Transfer Tax (ITP)
- Stamp Duty (AJD)
- Capital Gains Tax
- Urban Real Estate Tax (IBI)—Spain’s single largest source of real estate tax revenue, with €14 billion collected in 2024
- VAT on new homes (€11 billion)
- Personal income tax on rental income (€8 billion)
- Municipal fees and regional levies including the ICIO (Construction Tax) and building permit charges
According to the IEE, taxes can represent up to 25% of the final price of a subsidised home, distorting both supply and affordability.
Conclusion: more revenue or better housing?
While the PSOE initiative clearly aims to address housing-access woes, its reliance on new and higher taxes has sparked debate about fairness, effectiveness, and whether policymakers are genuinely tackling the roots of Spain’s housing shortage—or simply squeezing more out of an already overtaxed sector. Whether the bill succeeds or not, the discussion over how to balance fiscal policy and social outcomes in housing is set to remain centre stage.
