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Housing: Taxes and other fiscal policies. The european experience

There can be no denying the importance of the real estate sector for the Spanish economy. According to Sofía Borgia Sorrosal, the real estate sector in Spain has not just covered the need for housing – it has actually, for a great many years, been the driving force behind the economy. It is a sector which generates a lot of employment directly but which at the same time involves a great many related activities, and for this reason, the effects of both its growth and of any recession in it impact the economy as a whole.

This view, which is broadly shared by analysts of the Spanish economy, and the conviction that the Tax System needs to be compatible with competitiveness on the part of Spanish companies – particularly in key sectors – have prompted the Fundación Impuestos y Competitividad to commission its latest work, which was entrusted to university professor Sofía Borgia Sorrosal (Universidad Francisco de Vitoria). It is entitled “La vivienda: impuestos y otras políticas fiscales. La experiencia Europea” (“Housing: taxes and other fiscal policies. The European experience”) and was presented on 28 March at the headquarters of the CEOE under the auspices of APCE, the national business association representing the real estate development and construction sectors.

The event was presided over by Mr. Juan A. Gómez Pintado, President of APCE, Mr. José Mª Ortíz Ybarz, Dean of UFV, and Mr. Victor Mendoza Díaz Aguado, President of the Foundation. Following an introduction and short speeches by the above, the author set out the main arguments presented in her work and the event ended with a response from the public sector, represented by Mr. Pablo Luengo Borrero (Directorate General of Taxation, MINHAFP) and Mr. Anselmo Menéndez (Directorate General of Architecture, Housing and Land, Ministry of DEVELOPMENT).

In accordance with the sectoral nature of this analysis, the first chapter of the book focuses on economic considerations, and for this reason is entitled “Relevance of the real estate sector in Spain”. Supporting data are provided in relation to numbers of family homes, housing prices, trends in supply and demand, the effect of the sector on the development of the labour force, and on volumes of lending, or its impact on tax revenues. The analysis of all these factors covers a 20-year period and is amply illustrated by comparative tables and graphs.

The second part of the book focuses on a “Study of the taxation of housing in Spain”. It takes a look at the provisions in place in respect of different taxes, including most notably the regulations in respect of Personal Income Tax (focusing in particular on the different deductions available for investment in housing), Value Added Tax (analysing the treatment of refurbishments), Corporate Income Tax (with mention being made, in particular, of the recent changes relating to entities engaging in the leasing of residential properties and the tax regime for SOCIMIs, the most recent review of which has led to these real estate investment vehicles acquiring a role of far greater importance) and, naturally, analyses the regulations laid down by the Autonomous Communities and Local Entities in respect of taxes such as the Tax on Capital Transfers and Transactions Evidenced by Legal Documentation, the municipal “plusvalía”, or the Tax on Real Estate Assets.

The general conclusion reached from this analysis is that there has been a gradual elimination of the main tax incentives impacting the housing sector, which has led to a situation of “unusual abandonment, contrary to the situation seen in past decades”. Yet the State policy with respect to public expenditure on housing has done nothing to mitigate this downward trend.

This economic and fiscal analysis of the housing sector in Spain is completed, in chapter III of the book, with a very interesting account of the recent experiences of 6 other European countries – Germany, France, Italy, Poland, Portugal and the United Kingdom – and a broad study of the various solutions which these States have adopted over the past few years in order to reactivate their real estate markets. Professor Borgia Sorrosal groups these various solutions into what she refers to as “fiscal policies” and “other public policies”. She stresses the diverse nature of the solutions these States have implemented in recent years, and notes the absence of comparable measures adopted in Spain.

In the author’s opinion, there is no lack of demand for housing in Spain, the problem being that for the greater part of the population, it is inaccessible at the current prices and under the current credit terms. In her view, this situation could be modified through public policies.

From here she goes on, in chapter IV of the book, to provide an extensive list of “reform proposals” which are centred on tax measures but supplemented by other measures of varying kinds, all of which are based on three main lines of action:

  • the refurbishment of housing and urban renewal, contributing to energy efficiency,
  • support for the acquisition and ownership of first-residence housing
  • measures to stimulate the rentals market.

She acknowledges the risk involved in implementing tax incentives with no expiry date and the importance of moderation in their possible introduction.

The Fundación Impuestos y Competitividad does not necessarily agree with the specific measures proposed by the author of this book. It nevertheless values the importance which the work attributes to the housing sector in Spain and the express call voiced by the author for a review to be made of the current situation, with the involvement of the “public authorities and the construction industry”, in order to come up with a policy focused on making the sector efficient and competitive, thereby securing its long-term prosperity. At the same time, and in particular, such measures could help Spain comply with the European policy objectives which it has assumed, e.g. in relation to energy efficiency, refurbishment and urban renewal (the European 20-20-20 target).

The Business Association hopes that this initiative will be helpful in the search for suitable solutions, fuelling the dialogue between the various public and private interlocutors with responsibilities in this area. An open and ambitious analysis, such as that offered in this latest book sponsored and edited by the Foundation, is always a valid contribution.