When a Housing Shortage Fills the Coffers: Record Revenues in the Balearic Islands and the Islands' Bill

When a Housing Shortage Fills the Coffers: Record Revenues in the Balearic Islands and the Islands' Bill

Key question: Is a record budget of more than six billion euros something to celebrate when the islands are losing housing?

The figures from Palma are clear: in 2025 the Balearic government collected about €6.015 billion — a new high. The breakdown holds a few surprises: the property transfer tax provided the largest boost and poured around €742 million into the coffers, an increase of 13 percent. Income tax contributed more than €2.57 billion, roughly €475 million more than the year before. At the same time other items fell: value added tax shrank to about €1.594 billion (-14%), and inheritance tax dropped to around €85 million (-6.9%). Eco and sewage charges moved little or declined slightly (eco tax €142.6m, sewage fee around €90m).

Economically this is a classic mix: strong revenues, but with problematic ingredients. In many streets of Palma you can see it almost daily: estate agent signs, notary appointments by the hour, construction cranes in Portixol's harbor. At the same time people get up early at the Olivar market and calculate how they will manage the next rent payment. This imbalance is the quiet cause of the record: the tighter the market, the higher the prices — and the heavier the tax receipt for the public purse (see Balearic Islands in the Price Squeeze: Who Can Still Afford Mallorca?).

Critical analysis: the numbers reflect what is already felt on the street, but they also obscure contradictions. Rising incomes and many expensive property sales mask that the tax structure ultimately benefits those who sell properties at high prices or earn high wages. That may stabilize the budget in the short term, but it changes the social geography of the islands. If revenues from the property transfer tax become a main pillar, much depends on the real estate market — which is volatile and socially problematic. This trend is examined in Balearic Islands: Housing Becomes a Luxury — Who Will Stay on the Island?.

What is often missing in public debate: the connection between revenues and how the budget is used. The balance reads like a success — but only if you do not ask what the money is spent on. Does a significant share of these extra millions go directly into programs to create affordable housing, into municipal new builds, or into support for long-term rental contracts? Or does the money end up in general expenditures that do not solve the availability and affordability problem? Recent reporting on expected rent increases underscores the urgency: Balearic Islands: Rents to rise by an average of €400 in 2026 — who will pay the bill?.

An everyday scene says more than many columns of numbers: on a Tuesday morning a young family stands in a housing office in La Soledat. The landlord sold the property at a high price, the buyer plans a luxury conversion. The family is not eligible for the offer, and the app on their phone shows new listings — far beyond their budget. Meanwhile a phone rings in the town hall office: a call from an investor who wants to buy strategically freed-up properties. These parallel worlds are bitter reality and explain why a record budget is not automatically “good news” for everyone. The scene is similar to descriptions in When Living Rooms Become Bedrooms: How Mallorca Suffers from a Housing Shortage.

Concrete solutions (not pious wishes, but feasible):

- Dedicated allocation of transfer tax revenues: A statutory share of the property transfer tax (e.g., 20–30%) should automatically flow into a fund for social housing. This would ensure the windfall is used purposefully.

- Speculation levy: A time‑graded tax on quick resales (flipping) can dampen perverse incentives and generate additional funds.

- Vacancy and second‑home levy: Municipalities should be given instruments to tax permanently vacant properties and channel the proceeds into affordable housing.

- Renovation and rental incentives: Incentives for owners to rent out vacant apartments on a long-term basis instead of putting them on the holiday market.

- Stronger role for municipalities: Local councils should receive planning capacity and financing models to run their own social housing programs.

All these measures need not only money but political priority. It is not enough to revel in record numbers when people in the neighborhoods experience life as more expensive and insecure. Tax revenues can and must be targeted to counter the social hardening of the housing market.

Conclusion: the Balearic Islands earned more in 2025 than ever before. That is reality. The much more important question is whether these revenues make the islands more resilient and fairer — or whether they simply polish the mirror of what is going wrong in the housing market. If politics does not link the revenues to the causes, the record remains a bitter tally for many.