How to End Real Estate "Global Warming" (I)
The original (Spanish) version of this post can be found here.
Too often, we think that the housing problem will be solved if we fix access to it. As if making rent affordable would eliminate the issue altogether. In other words, we tend to see it as a problem of price. Over the decades, this has led to the widespread belief that what we need is more rental supply to bring prices down, for municipalities to build public housing for rent, for landlords not to leave properties vacant, and so on.
But let’s imagine for a moment that rental prices stabilized and never exceeded 25% of people’s income. We would still have a portion of the population transferring part of their earnings, for their entire lives, to another portion. Would it be fair for the majority to work just to pay rent to a minority? Wouldn’t that still be absurd? Isn’t that a feudal system? Is this the kind of society we want?
I don’t think so.
We have inherited the idea of renting uncritically because it was embedded in a model where it was merely a temporary toll to pay before reaching the promised land of homeownership. You paid rent for a few years when you were young, then bought a home at a reasonable price, and lived happily ever after. But that reality no longer exists. It has transformed into something entirely different—and far more dangerous. The rental economy comes with an entirely new societal model. One in which some have secured ownership of real estate assets and are now extracting immense profits at the expense of a generation that has no chance of ever winning this game.
This kind of real estate "global warming" threatens our way of life just as climate change does. The difference is that, in this case, what’s at risk isn’t the planet—it’s democracy.
To stop it, we must first define the kind of economy we want. A productive economy—one that meets people’s needs by creating goods and services—has been the foundation of modern European society.
Therefore, we must acknowledge that rental housing does not belong to this productive economy. Renting out properties—aside from the small fraction related to commercial management or maintenance—neither creates value, nor generates jobs, nor produces goods, nor provides a service. The same goes for property sales, which don’t even count toward GDP because they are not productive transactions.
And yet, today, this non-productive economy masquerades as "investment." It is often celebrated as a mechanism for improving housing accessibility and, for reasons that are difficult to justify, enjoys far more favorable tax treatment than the productive economy.
The situation is this absurd:
Dabiz Muñoz is one of the best chefs in the world. His restaurant in Madrid employed around 100 people in 2021. In addition to serving meals, it was also the hub of a budding food delivery business. That year, the restaurant had a revenue of 13 million euros and made just over half a million euros in profit—a little under 4%.
Is that a lot? Is it little? It’s similar to what other businesses earn. El Corte Inglés reported a 5.6% net profit in its last fiscal year. Filmin, 1.6%. eldiario.es, 17%. Even though many businesses have doubled their profits due to inflation, their margins rarely exceed 10%.
All these companies employ thousands of people and pay massive amounts of VAT, social security contributions, and income tax—only to end the year, with tremendous effort and a bit of luck, at around 10% profitability. And these are the ones that have done well.
Meanwhile, the average rental yield across the country is 6.4%. No workers, no need to produce anything, no competition, anyone can achieve that return (on average, not just those who got lucky).
What’s the point of starting a business, taking risks, and putting in the effort if you can make the same amount from renting? The profitability of housing is discouraging investment in the kind of society we want.
(Or the one we need—because if we want to keep funding the welfare state, we can’t afford to let 40% of the economy operate tax-free… no corporate taxes, no VAT, no social security contributions, because it barely employs anyone.)
If we want the productive economy to have any chance of competing, the first thing we need to do is level the playing field:
Measure #1: Send a Market Signal
Investors are like fortune tellers. They act based on their interpretation of the future. There’s a well-known story about how the surge in public debt prices in southern Europe during the 2008 crisis ended overnight when the President of the European Central Bank declared that Europe would defend the euro “whatever it takes.”
Right now, investors believe that governments worldwide are perfectly happy with rising housing prices because a significant portion of their voters use property as a store of value (rather than an investment) and see it as a good thing.
Simply by sending the opposite message, we could cool down the global real estate boom. The generations left out of this redistribution of real estate capital—Millennials and Gen Z—should be fighting tooth and nail to push their representatives into sending those market signals.
Measure #2: Equalize Taxes Between Real Estate and Productive Businesses
As unbelievable as it sounds, companies dedicated to rental housing enjoy outrageous tax benefits. A well-known example is SOCIMIs (Spain’s version of REITs), publicly traded rental companies that are completely exempt from corporate tax.
But beyond that, any company engaged in residential leasing benefits from a special tax regime that, until 2021, reduced the corporate tax rate to 3.75%—and now caps it at 15% (productive businesses pay 25%). These are small and medium-sized enterprises (SMEs), and this tax break is literally available to anyone.
Why should a company that buys apartments to rent them out pay 40% less in taxes than the country’s most innovative chef? Who are we trying to incentivize?
Measure #3: Equalize Taxes Between Companies and Individuals
There is a tax designed to prevent the unchecked accumulation of wealth: the wealth tax. Whether you support it or oppose it, one thing should be clear, we shouldn’t determine who pays it based on legal status.
Right now, individuals pay wealth tax, but corporations do not. A company can accumulate as much property as it wants and never pay a cent in wealth tax.
A real estate wealth tax for companies would help correct this imbalance.
Measure #4: Stop Encouraging Foreign Real Estate Speculation
Currently, the golden visa program allows anyone among the world’s 6 billion inhabitants to buy a European residency permit with a €500,000 real estate investment.
Amazingly, if they want to invest in productive businesses (like IBEX-listed stocks, for example), they’re required to spend twice as much.
It might sound like a lot of money, but that visa allows for family reunification, meaning even more people can enter the system. Imagine being a middle-class family from a struggling country—wouldn’t you make that investment? That’s exactly what many Chinese families are doing, for instance—buying three apartments in southern Madrid and expecting an 8% return on them.
The situation is so absurd that 30% of newly built housing in Spain is sold to foreign buyers.
These measures alone won’t reverse the trend, but they’re a starting point, and they’re within reach of legislative action. Most importantly, they can build a broad consensus among workers, productive businesses, and all those concerned with creating a society of opportunities for everyone.
Next week, we’ll discuss other measures, starting with a key question: Where does the value of housing come from?