Why is Spain considering a 100% tax on homes purchased by non-EU residents?

madrid—— Spain is planning a series of measures to tackle its brewing housing crisis, including imposing a tax of up to 100% on properties purchased by non-EU residents.

Spanish Prime Minister Pedro Sánchez announced the plan this week, which will address housing affordability and high rents in the southern European country. The overall goal, he said, is to provide “more housing, better regulation and more assistance.”

However, it is unclear whether the plan proposed by Sanchez's minority coalition will pass Congress.

Let's see what happens:

Like most wealthy countries, Spain faces a growing housing affordability problem. The rent surge has been particularly severe in cities such as Barcelona and Madrid, where incomes have failed to keep up, especially for young people. House prices are also rising steadily, especially in urban and coastal areas.

Short-term rentals, primarily for tourists, also drive up rental prices. Spain receives more tourists than almost any country in the world, with more than 88.5 million tourists expected to visit the country by 2024.

The negative impact of tourism, or “overtourism,” has sometimes stoked tensions between visitors and residents, who worry about rising rental prices, a surge in short-term rentals on platforms like AirBnB, and the potential for water supplies to be strained in some areas. The country includes the popular Canary Islands and Balearic Islands.

Protesters have taken to the streets multiple times across the country last year to voice concerns about growing tourism and high rental prices. Barcelona City Hall has pledged to completely eliminate all short-term rentals for tourists over the next few years.

Spain plans to limit the number of homes bought by foreigners by raising taxes on homes purchased by non-EU residents to 100%.

Announcing the plan, Sanchez said that non-EU residents bought 27,000 properties in Spain in 2023 “not to live in” but “to make money”.

Sanchez did not provide a timeline or details on how he plans to implement the tax.

Other proposed measures include an increase in vacation rental taxes and tax breaks for landlords who provide affordable housing in high-rent areas.

In recent years, rising costs of living have fueled dissatisfaction among voters in many wealthy countries, including the United States.

But the housing crunch is a key issue for Sanchez, one of Europe's leading socialist politicians, as he tries to maintain a left-wing minority coalition four years after winning re-election in 2023.