# Councils that use licences to raise money: how to change Spanish town halls' incentives on housing

> Spanish councils collect a construction tax (ICIO) of up to 4% of a project's cost and a licence fee capped at the cost of the service, both paid at the start of the works. That links town-hall budgets to building booms and does little to reward the homes that actually get finished. The radical-centre answer gives councils stable funding of their own, ties a share of their income to completed homes, protected homes above all, and publishes how fast each council grants licences.

- URL: https://www.radicalcentre.eu/en/articles/councils-licences-revenue-incentives-housing-spain
- Language: en
- Publisher: radical centre / centro radical
- Published: 2026-10-26
- Topic: Housing
- Author: radical centre
- Licence: CC BY 4.0

## Key points

- The construction tax ICIO can reach 4% of the cost of the works and accrues when construction begins, even without a licence.
- By law the licence fee itself may not exceed the real or foreseeable cost of the service.
- Councils may cut ICIO by up to 50% for protected housing and up to 95% for works of special municipal interest.
- Economist José Manuel Naredo argues that tying council funding to building activity fed Spain's property bubble and left town halls exposed when it burst.
- England's New Homes Bonus paid councils for each new home for six years; the National Audit Office found little early evidence it changed behaviour, a warning for any copy.

Miriam González's launch speech for Democracia 21 on 10 October made an accusation that every developer in Spain has heard in some form: councils use licences to raise money instead of getting homes built. We set out the speech's housing diagnosis in our [overview of the party's proposals](/en/articles/democracia-21-miriam-gonzalez-proposals-radical-centre). Here we take this one claim seriously, because it points at something real. The way Spanish town halls are paid shapes how they treat housing, and the incentives are badly set.

## What a council earns from a building

Two charges matter, and the local finance law (Royal Legislative Decree 2/2004) treats them very differently.

The first is the licence fee, the *tasa*. Article 20 lets councils charge for granting planning licences, or for checking a declaration where a licence has been replaced by one. Article 24 caps the total at the real or foreseeable cost of the service. In law, then, the fee can't be a money-maker.

The second is the construction tax, the ICIO, regulated in articles 100 to 103. It applies to any building work in the municipality that needs a licence or a prior declaration, whether or not the licence has been granted. The base is the material cost of the works, and each council sets its own rate up to a ceiling of 4%. It accrues when construction starts. The same law lets councils cut it by up to 50% for officially protected housing and by up to 95% for works the plenary declares of special municipal interest.

So the charge that raises real money is a one-off tax collected at the start of a project. The amounts move with the building cycle. The newspaper *Menorca.info* reported on 25 October that the island's eight councils took about €6.3 million in planning fees and ICIO in 2025, down almost €400,000 on the year before, and that a single solar park and a hotel had sent one town's income soaring in 2024. A few big projects can make a small council's year.

## How the incentives go wrong

Look at the arithmetic from a town hall's point of view. A new block brings an ICIO payment once. Its residents then need streets cleaned, schools, buses and services for decades. The recurring property tax (IBI) helps, but only once the homes are finished and registered. Nothing in the system rewards a council for being fast, and the people who complain about the building site already vote there.

Slowness costs councils too, though few notice. A 2020 study by the Madrid developers' association ASPRIMA with EY, titled *Licencias urbanísticas: el tributo invisible*, estimated that new-build licences took about 12 months on average against a recommended three, adding close to €13,000 to the cost of each home. It also calculated the IBI that councils lose while homes wait: around €10 million for Madrid city, €4.2 million for Barcelona and €1.5 million for Valencia.

The deeper problem has a history. The economist José Manuel Naredo argued in 2015 that the way Spanish councils are funded helped build the property bubble. Underfunded town halls were invited to share in the income from development and construction, which encouraged a cosy consensus between developers and local politicians to rezone land and expand the built volume, sometimes with little relation to what residents needed. When the bubble burst, municipal income collapsed with it. Naredo and the 2010 white paper on sustainable planning he co-directed proposed council finances that are sufficient and stop depending so heavily on acts that increase the built volume.

Demsas's book, which we explain in [today's explainer](/en/articles/jerusalem-demsas-on-the-housing-crisis-explained), adds the political half. A council answers to its current residents, and each town gains by keeping newcomers out while the region needs them in.

## What other countries tried

England tried to pay councils for housing directly. From 2011 the New Homes Bonus gave local authorities, for every home added to the council tax register, an amount equal to the national average council tax for that band every year for six years, plus £350 a year for each affordable home. The National Audit Office reviewed it in 2013. It found the scheme simple and easy to explain, and also found little evidence that it had yet changed councils' behaviour or planning approvals. Because it was funded by top-slicing general grants, councils in areas where developers don't want to build lost money. A copy for Spain should learn from both findings.

## The radical-centre proposal

From the left we take Naredo's point: councils need sufficient and stable funding of their own, and their schools and street cleaning should never hang on the next construction boom. From the market-liberal side we take cost-based pricing and predictability: a licence should cost what it costs to process, as the law already says, and the tax burden on building homes should be low and known in advance. The idea that fits neither camp is to pay councils for results, measured in homes that people can live in.

In practice that means four changes, which a state-regional agreement could deliver in one legislature.

1. **Pay for completed homes.** A recurring transfer from the regional or state financing system for each home completed and registered, for several years, larger for protected and social rental homes. Funded with new money so that councils where little gets built are not punished, which was the English scheme's flaw.
2. **Make ICIO relief for protected housing standard.** Councils already may cut ICIO by up to 50% on protected housing. Regional laws can make that the default and compensate councils through the transfer above.
3. **Spend the licence fee on licences.** The fee is capped at cost; earmark it for the technical staff who process files, so that more applications bring more capacity.
4. **Publish times.** Every council publishes, quarterly, how long it takes from application to licence. Our piece on [permit paperwork](/en/articles/spain-building-permits-three-years-paperwork-how-to-cut) explains why that number matters.

None of this removes a council's say over how its neighbourhoods look. It changes what a town hall gains when the homes are finished and the new neighbours move in, which is the moment that matters for everyone still looking for a place to live.

## FAQ

### What is the ICIO?

The Impuesto sobre Construcciones, Instalaciones y Obras is an optional municipal tax on any building work that needs a licence or a prior declaration. The base is the material cost of the works and each council sets the rate, up to a ceiling of 4%.

### Can a Spanish council charge whatever it wants for a building licence?

No. The licence fee (tasa) is capped by the local finance law at the real or foreseeable cost of the service. The ICIO is a tax, so it can raise more than it costs to process the file.

### Do councils make money from slow licences?

They lose money. A 2020 study by the Madrid developers' association ASPRIMA with EY estimated that 12 months of licence delays cost Madrid city about €10 million in property tax (IBI) from homes not yet finished.

### What did Democracia 21 say about licences?

Miriam González's launch speech on 10 October 2026 complained that councils use licences to raise revenue instead of getting homes built. We analyse it here as we would any party's proposal.

## Sources

- [Real Decreto Legislativo 2/2004, texto refundido de la Ley Reguladora de las Haciendas Locales](https://www.boe.es/buscar/act.php?id=BOE-A-2004-4214), BOE (2004)
- [El retraso en la concesión de licencias de obra nueva tiene un sobrecoste medio para el comprador de casi 13.000 euros por vivienda](https://www.ey.com/es_es/newsroom/2020/05/el-retraso-en-la-concesion-de-licencias-de-obra-nueva-tiene-un-sobrecoste-medio-para-el-comprador-de-casi-13-000-euros-por-vivienda), EY / ASPRIMA (2020)
- [Un tema clave: el modelo de financiación local y su relación con los distintos modelos inmobiliarios](https://dialnet.unirioja.es/descarga/articulo/5077362.pdf), Papeles de relaciones ecosociales y cambio global (José Manuel Naredo) (2015)
- [The New Homes Bonus (executive summary)](https://www.nao.org.uk/wp-content/uploads/2013/03/10122-001-New-Homes-Bonus_HC-1047-Exec-Summ.pdf), National Audit Office (2013)
- [¿Cuánto ingresan los ayuntamientos de Menorca por tasas urbanísticas y el impuesto de construcción?](https://www.menorca.info/menorca/local/2026/10/25/2735007/cuanto-ingresan-ayuntamientos-menorca-por-tasas-urbanisticas.html), Menorca.info (2026)
- [On the Housing Crisis](https://www.zandoprojects.com/books/on-the-housing-crisis), Zando / Atlantic Editions (2024)