Want to move to Spain? New tax is about to make it much more expensive

The Ongoing Housing Crisis in Spain: A Perfect Storm of Overtourism and Foreign Investment

Spain, a country renowned for its rich culture, vibrant cities, and stunning landscapes, is grappling with a severe housing crisis that has been exacerbated by overtourism and the proliferation of short-term holiday rentals. In recent years, the pressure on the housing market has reached unprecedented levels, with skyrocketing rents and unaffordable property prices leaving many residents struggling to find adequate housing. The situation has been further compounded by the influx of foreign buyers, particularly non-EU residents, who have been purchasing properties not as homes but as lucrative investments. In response to this growing crisis, the Spanish government has announced a bold new measure: a 100% tax on properties bought by non-EU residents. This move, while controversial, is designed to prioritize housing for residents and stem the tide of foreign investment that has driven up prices and displaced local communities.

The New Tax on Non-EU Property Buyers: A Desperate Measure to Cool the Market

Spanish Prime Minister Pedro Sánchez has described the new tax as an "unprecedented" step necessary to address the country’s housing crisis. According to Sánchez, non-EU residents purchased 27,000 properties in 2023, not to live in but to generate income through rentals or resale. These purchases, often made for investment purposes, have contributed to the inflation of property prices and the scarcity of available housing for Spanish residents. The new tax is intended to make such investments less financially attractive, thereby discouraging non-EU buyers from entering the market. However, it’s important to note that the tax does not outright ban non-EU residents from buying property in Spain; rather, it makes such investments significantly more expensive and less viable for many potential buyers.

The tax is part of a broader effort by the Spanish government to regain control of its housing market, which has been increasingly dominated by foreign investors. The move has been met with mixed reactions, with some applauding the government’s proactive approach to addressing the housing crisis, while others have raised concerns about the potential impact on the economy, particularly the real estate and tourism sectors. Importantly, the new tax will not affect EU residents, as Spain is bound by its obligations as a member of the European Union. Additionally, the tax will not retroactively apply to existing property owners, though the government has hinted at potential future measures, such as increased capital gains taxes, to further regulate the market.

The Role of Overtourism in Spain’s Housing Crisis

The housing crisis in Spain is inextricably linked to the country’s booming tourism industry. In 2024, Spain welcomed a record 94 million international travelers, marking the best year for tourism since records began. While tourism has long been a cornerstone of Spain’s economy, the sheer volume of visitors has placed immense strain on the country’s housing market. The rise of short-term holiday rentals, particularly through platforms like Airbnb, has transformed residential properties into lucrative tourist accommodations, reducing the availability of long-term housing for local residents. This shift has driven up rental prices, making it increasingly difficult for Spanish citizens to afford housing in their own cities.

Cities like Barcelona and Madrid have been particularly hard hit by the proliferation of short-term rentals. In these urban centers, entire neighborhoods have been converted into de facto tourist zones, with landlords opting to rent properties to visitors rather than local residents. This trend has not only displaced long-term tenants but also contributed to a sense of alienation among locals, who feel their cities are being transformed into playgrounds for wealthy tourists. The situation has become so dire that some cities, including Barcelona, have announced plans to phase out tourist flat licenses entirely by 2028. Since 2014, Barcelona has not issued any new licenses for short-term rentals, capping the number of available units at around 10,000. Despite these efforts, the demand for tourist accommodations remains high, continuing to drive up rental prices and exacerbate the housing crisis.

Public Backlash and Protests Against Overtourism

The impact of overtourism on Spain’s housing market has sparked widespread outrage among residents, leading to a wave of protests and demonstrations across the country. In cities like Barcelona, the Balearic Islands, and the Canary Islands, thousands of people have taken to the streets to voice their frustration over the unchecked growth of tourism and its effects on their communities. Protesters have called for stricter regulations on short-term rentals and measures to protect affordable housing for locals. In some instances, tensions have boiled over into confrontations with tourists, with residents spraying water at visitors and chanting slogans like "tourists go home."

The backlash against overtourism reflects a deeper sense of frustration and helplessness among Spanish residents, who feel that their government has allowed the tourism industry to run amok at the expense of local communities. While tourism remains a vital part of Spain’s economy, many argue that it must be managed in a way that prioritizes the needs and well-being of residents. The Spanish government has taken some steps to address these concerns, including introducing higher taxes on holiday rentals and cracking down on illegal short-term lets. However, critics argue that more radical measures are needed to restore balance to the housing market and ensure that housing remains affordable and accessible to all.

The End of the Golden Visa Program and Its Impact on Property Prices

In addition to the new tax on non-EU property buyers, the Spanish government has also taken aim at the "golden visa" program, which offered residency in exchange for investments in real estate. The program, which required a minimum investment of €500,000 in property, was designed to attract wealthy foreigners and stimulate the economy. However, it has been criticized for driving up property prices in city centers like Barcelona and Madrid, making housing even less affordable for local residents. The golden visa program has been particularly popular among investors from outside the EU, who were drawn to the promise of residency and visa-free travel within the Schengen Area.

The decision to phase out the golden visa program by April of this year marks a significant shift in Spain’s approach to foreign investment in real estate. While the program has generated significant revenue for the government, it has also contributed to the speculation and inflation that have plagued the housing market. By ending the program, Spain hopes to reduce the flow of foreign capital into its real estate sector and cool the market, making it easier for locals to purchase or rent homes. The move is part of a broader effort to regulate foreign investment and ensure that housing is treated as a fundamental right rather than a commodity to be bought and sold for profit.

Balancing Tourism and Housing: A Way Forward for Spain

As Spain confronts the twin challenges of overtourism and foreign investment in its housing market, the government is being forced to strike a delicate balance between preserving the economic benefits of tourism and safeguarding the rights of its citizens to affordable housing. While the new tax on non-EU property buyers and the phase-out of the golden visa program represent important steps in addressing the housing crisis, they are only part of the solution. Long-term, the Spanish government will need to implement more comprehensive measures to regulate the real estate market, increase the supply of affordable housing, and ensure that tourism is managed in a sustainable and responsible way.

The debate over how to address the housing crisis in Spain is far from over, and the coming years will likely see continued tensions between the interests of foreign investors, the tourism industry, and local residents. However, by taking bold and decisive action, the Spanish government has the opportunity to reshape its housing market and ensure that housing remains a fundamental right for all, rather than a privilege reserved for the wealthy. The success of these efforts will depend on the government’s ability to listen to the concerns of its citizens, implement effective policies, and maintain a commitment to creating a more equitable and sustainable housing system for future generations.