Dangerous Minds, Dangerous Laws

The new PSOE proposed housing law, put forward on May 22, 2025, is dangerous and designed to be defeated. But by mooting it, the PSOE government may well be doing untold damage to the Spanish housing market and tourism economy.

Firstly, what is the proposed law? It is a response to a real crisis that exists in Spain. Not enough housing is being built, especially affordable rental housing. This has led to an unprecedented housing movement that has mobilized hundreds of thousands. Meanwhile, housing prices continue to rise faster than the rate of inflation. Spanish youth live at home till almost 30 years old, the oldest in the EU.

This new law includes a number of measures that quite frankly should be treated as gibberish, certainly they should be considered irresponsible considering the serious nature of the real and pressing issue of housing, or rather lack of it, in Spain.

There are measures in the proposed law which do appear to have some semblance of logic in response to the Spanish Housing Crisis. These include measures to encourage long term rental housing, by granting tax breaks for landlords. This can rise up to a 100% tax break if a landlord charges below market rates. A great proposal if it did not remain very difficult to remove non paying (and even paying) tenants.

There are also tax increases on vacation homes based on their “imputed value” as an income property – whether it is actually rented or not – and tax increases on vacant homes which we will look at in a separate article.

Tourist apartment rentals will also be taxed VAT for the first time, to “level the playing field” with hotels. Up to now, hotels have had to pay a 10% sales tax, while Airbnbs have not paid at all.

But, inexplicably, tourist apartment rentals will be charged the full 21% VAT, while hotels will continue at the lower 10%. The logic of this shift to make it unbalanced in the other direction has not been explained.

100% Tax Hike

By far the most controversial measure of the proposal is a plan to impose on Non-EU foreign purchasers of property in Spain a 100% tax increase.

In principle this would mean any American or British Non Resident – the largest group of foreign buyers – will pay double the purchase price of an EU resident. According to the proposal, the same property an EU resident pays 1m Euros to purchase will, if the law is passed, cost a Non EU National 2m Euros.

When you put the proposal into context it appears so absurd and unfair you wonder how any person, sane or otherwsie, could have contemplated it. It’s so unbelievable I had to check with a lawyer the wording of the law to make sure this was correct. I cannot seriously believe a government would pass such a proposal into law.

What if it became law?

It is not a ban on foreign property buyers as such but it might as well be, at least as far as second hand home purchases are concerned. If it were implemented, it would be a disaster for the real estate sector, especially on the costas, where most foreign buyers purchase property.

In another bizarre twist, the new tax would not apply to property purchases that are subject to VAT. This means that all new-build or off-plan home purchases would be exempt from the 100% “supertax.” There is also no increase for commercial real estate, for no apparent reason.

And foreign purchases are overwhelmingly of second hand homes, at 81.4%, according to property portal Idealista. If the proposal was passed, which is probably as likely as Sanchez resigning, the collateral damage would be disastrous.

For one thing, those property purchases do more than just support the real estate sector. They also provide jobs to hundreds of thousands who work in the construction, tourism and vacation industries. Service providers, restaurant workers, even healthcare workers, bus drivers and plumbers in these areas are reliant upon this important financial input into the economy.

Why would Sanchez propose a law that is destined to fail?

Is there any chance the new law could be passed? It is opposed both from the right and the left, making passage through Congress very unlikely. Even if it did, it is almost certain that the housing law will not pass through the Senate, at least not in its current form. Knowing this, what could be the motivation for Prime Minister Sanchez to push a law destined to fail?

Possibly, it is for one very obvious and cynical reason, electoral positioning. Sanchez is a master of political theatre and strategy. The proposal could be seen as a dramatic gesture and political appeasement to the public for the housing crisis.

This public wants positive action and someone to blame. Non EU nationals in this context become the straw man to publicly roast, by directing the focus upon foreigners Sanchez deflects blame from the Government to immigration. And it would appear the only reason why Sanchez has chosen ¨wealthy¨ Non-EU nationals as his scapegoat is because they are his only target, targeting EU buyers, would be against the laws and principles of the EU itself.

Of course, we know from history that this kind of posturing can be dangerous and unleash popular moods that turn ugly. It is easier to target minorities, “strangers” and the ¨wealthy¨ than it is to deal with politically difficult problems. And housing is a very difficult problem indeed for Spain.

Currently, PSOE is in second place behind the PP – but not by much, perhaps by as little as 4% – and they have been slowly rising for the last six months.

It might not require much to take advantage of the energy and anger of the housing movement and pull it into support for PSOE. A victory for their housing agenda could put Sanchez’ party within spitting distance of overtaking the PP. It is only in a political context that the absurdity of Sanchez´s proposal begins to make sense.

Negotiating Position

It may well also be that Sanchez intends to lose on the high profile issue of the foreign buyers 100% tax – to win on other issues. After all, even if it were to pass the Senate, it almost certainly would be struck down by the EU, which explicitly forbids such measures, and/or the Spanish Supreme Court.

Could this be a strategy where Sanchez gets everyone to focus on the outrageous and untenable 100% tax as a means to get through other measures?

That could include the proposed tax increases on Airbnb rentals as well as on corporate societies (SOCIMIs) formed to purchase real estate. It could also include other measures such as rent controls, subsidies to landlords who provide long term rentals, and tax hikes on vacant homes.

Whatever the motivation, it is an ill-conceived strategy. Not because it will fail but because what if it won? It would be an utter disaster, leading to market chaos and widespread instability. That is not an environment that is conducive to spurring new development. It will do the opposite, in fact. It will exacerbate the housing crisis.

And even in its inevitable defeat, it will increase cynicism both within Spain and towards it. As Trump has shown, when you make your guests feel unwelcome and apply random taxes there are economic consequences.

By Adam Neale | Property News | June 3rd, 2025

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