Foreign homebuying triples while young buyers collapse

Housing: Foreign purchases triple while young buyers collapse

Who is buying the homes young people can no longer afford? Foreign purchases of housing in Spain have tripled while purchases by young buyers have collapsed. El Confidencial reported it, and the figure landed like a bombshell: non-resident foreign investment appears as one of the factors pressuring the market, not the only one. The rest of the diagnosis has been repeated for years—expensive land, strangled new construction, high interest rates—but the blame game is where the conversation breaks down.

How much has foreign homebuying grown?

The baseline figure is an uncomfortable comparison: transactions by foreign buyers have tripled while those by young people have collapsed. The statistic does not distinguish between those settling here and those buying from abroad to park money, and that gap fuels every interpretation. Nor does it separate a primary home from a pure investor: some point out that a foreign buyer who resells leaves the money with the Spanish seller, while others respond that the money leaves the housing circuit and does not build a single new home. The latest figures have not settled the debate over land and the lack of new development; they have only heated it up.

Should non-residents be taxed or banned from buying?

Here the conversation splits in two. One camp argues for taxing the hell out of housing owned by people who do not reside in the country, on the grounds that if young people will not be able to buy, at least the state can collect on that side. The response comes quickly from the other side: those buying with money already earned will buy just the same, with or without taxes, because the cost gets passed on to the price. The maximalist alternative is an outright ban: requiring ten years of prior residence, a high-level language test and proof of ties to the country, as well as barring purchases by legal entities and investment funds. The proposal usually adds that EU citizens would be exempt from the ban and everyone else would not. No one has yet explained how those ties would be verified.

How many taxes does a homebuyer already pay?

Few people do the full math, and it is a long calculation. On top of the purchase price comes around 10% in transfer taxes; then there is the annual IBI (local property tax), waste collection fees, capital gains and the plusvalía municipal (municipal land-value gains tax) when selling, plus inheritance or gift taxes when the home changes hands within the family. One calculation circulating in the debate goes further: just to buy, the price has already risen by between 11% and 12% due to IVA (VAT) and AJD (Spanish stamp duty); add inflation, a 3% devaluation of money in a year, that year's IBI and, if the home is not occupied, a charge of up to 2% of the cadastral value as real estate capital income. Reselling a flat for 20% more the trinc year may not be the deal it looks like.

A 5% IBI and the comparison with the United States

The most aggressive proposal that has circulated is to tax ownership at 5% of the property's value per year. Its defenders look to the United States, where houses and cars are cheap to buy and expensive to maintain, and argue that such a hit would make prices plunge and send speculators running. The objection is always the same: taxes deter everyone, not just investors, and the intermediary is not an NGO, so it ends up passing the cost on to the price. Applying the measure only to non-EU nationals is not convincing either. The problem, critics say, is that it taxes ownership rather than income: someone buying to live in the home is punished just like someone stockpiling property.

Is it too much regulation or too little new construction?

The underlying accusation is that all this has been caused by state regulation and that the answer cannot be more paperwork. Deregulate land and cut taxes, that camp insists, because all economic goods work the same way. From the other side comes the obvious retort: demanding ten years of residence and a language exam is even more regulation, not less. And in the middle are those who locate the knot in supply: demand grows with constant arrivals every year while construction has spent seven years dealing with obstacles, permits and costs that make it impossible to build anything. Without more supply, any measure on demand is a patch on a broken pipe.

Tourism, services and the cost of building

Is tourism the cause of everything? Housing dedicated to tourist rentals accounts for 4% in certain cities, and that is used as evidence in both directions: to play down its impact or to point out that 4% in the centre of a capital is enough to throw everything out of balance. Some also argue that tourism is an extractive industry that drags labour into lower-quality sectors and that a country cannot sustain itself serving drinks. The sceptical response is that building and building is extremely expensive in services and is not needed to create new ghettos, so it does not look like the magic solution either.

In the end, the three fashionable recipes—ban, tax and deregulate—compete for the same deck of cards and none proves itself. The only thing no one disputes is the starting figure: young people are not buying. On that, there is no debate.