The Institute of Economic Studies (IEE) believes that the high tax burden on housing in Spain is exacerbating the imbalance between supply and demand, leading to rising prices and difficulties in accessing housing. A study presented on Tuesday, conducted in collaboration with the General Council of Economists, shows that Spain has the highest tax burden on home purchases in the European Union. This, it argues, represents a significant obstacle to the commissioning of the estimated 2.2 million properties needed in the country by 2040.
The study argues that home taxation in Spain is more burdensome than in most developed countries. Specifically, the IEE estimates that, taking into account the various types of taxes, the purchase of a home has an effective tax rate of 30.3%, significantly higher than the European average of 6.5%. According to the report’s calculations, this is the second-highest tax level in the entire OECD, surpassed only by Canada’s 38.9%. The difference compared to the average is somewhat smaller when it comes to rental taxation: In Spain, the effective marginal tax rate for rental contracts is 44%, compared to the EU average of 31%.
“It is astonishing that a basic need is penalized so heavily from a tax perspective,” said IEE President Íñigo Fernández de Mesa at a press conference, pointing out that up to a quarter of the total cost of owning a home is accounted for by taxes. “If we are truly dealing with a good, it makes no sense to tax it so heavily,” emphasized Gregorio Izquierdo, the study center’s general director.
The report warns that this “enormously burdensome” taxation extends over the entire useful life of the properties. The IEE points out that buyers face a general tax rate of 11% for property transfer tax (ITP) upon acquisition, which is the third highest in the EU after Belgium and the United Kingdom. In addition, Spain, along with Norway and Switzerland, levies a tax on net wealth during property ownership, with a maximum marginal capital gains tax rate of 30% applied upon the sale of the home – a rate higher than the European average of 16.4%.
The study also shows that there are significant differences in housing taxation between the autonomous communities. For example, when purchasing a new home, the ITP must be paid, which is 13% in the Balearic Islands and 11% in Catalonia, the Valencian Community, and Extremadura, while it is only 6% in Madrid, Navarre, Ceuta, and Melilla. The employers’ think tank sees Madrid as the region with the “greatest fiscal competitiveness” and argues that lower taxes promote market dynamism. “It is the right approach in economic policymaking to facilitate the smooth functioning of the real estate market,” said Izquierdo.
According to IEE calculations, governments generate €52.2 trillion annually in taxes related to housing, equivalent to 3.5% of GDP. The IBI (property tax) contributes the most to the real estate sector, accounting for approximately 30% of total revenue, followed by VAT and income tax. “Housing is subject to all types of taxes: VAT, IRPF, ITP, stamp duty, inheritance tax, IBI, building permit fees… all these taxes,” explained Fernández de Mesa, pointing to “overregulation” in the housing sector. He described measures such as rent control as “ineffective and counterproductive.”
The employers’ think tank estimates that 2.2 million homes will need to be built in Spain between 2025 and 2040 to meet demand. This would require an investment of approximately €380.000 million. “This cannot be achieved solely through the public sector. It must be done through a public-private partnership,” defended the IEE president, emphasizing that “no source of financing can be neglected.” Fernández de Mesa believes that high taxation does not help attract the private investment needed to build this number of homes. “Spain is not at all attractive to international investors, who could play an important role. We should have much more private investment,” he said.
To improve the tax treatment of housing in Spain, the report by the Employers’ Study Center includes a series of proposals aimed at encouraging investment, increasing the available supply, and supporting both ownership and rental to facilitate access. Specifically, they call for tax incentives for renting properties, a reduction in the tax burden for landlords, lower taxes on real estate transactions, the abolition of inheritance tax on primary residences, a reduction in the IBI, and a significantly reduced 4% VAT on renovations. It also proposes the creation of an information portal compiling the various tax deductions.
