The Spanish government is moving to incentivize developers to build affordable rental housing, acknowledging that direct subsidies will be necessary to ensure projects remain profitable. A key component of the new ’España Crece’ fund, announced February 16, 2026, by President Pedro Sánchez, will allow the Instituto de Crédito Oficial (ICO) to waive repayment of portions of financing provided to companies undertaking affordable rental developments, provided they meet minimum price and occupancy targets.
Sources at the credit institute recognize that despite successfully financing 7,125 affordable rental properties in recent years, the market remains hesitant about these types of operations due to uncertainties surrounding future profitability, longer and more uncertain investment recovery timelines inherent in the rental segment, and price caps on rental properties.
4.000 millones
The government was forced to ask Brussels to reduce the allocation of the ICO Vivienda line by 80%, the government’s major bet to boost the affordable rental housing construction market, due to a lack of demand
The ICO offers more flexible repayment terms, with maturities of up to 40 years, significantly longer than those offered by traditional commercial banks, but this incentive has not been enough to overcome developers’ reservations about this market segment. The government requested a reduction of 80% in the allocation of the ICO Vivienda line, opened in 2024 and initially endowed with 4 billion euros, in December of last year, recognizing that it would not meet its targets for bringing properties to market due to a lack of demand.
Lessons learned over the past several years have prompted the ICO to take a bolder approach. “We realized that without any assistance, we would not be able to solve the problem, because there was no one in the market interested in promoting affordable rental housing,” sources at the public bank stated.
They reassessed the financial instruments they were using and convinced the government to reserve a portion of the 2.8 billion euros in non-refundable transfers from the Recovery Mechanism, which the executive has decided to redirect to the ICO, to multiply its capacity to provide financing and guarantees for its plan to boost affordable rental housing.
According to officials, these non-refundable funds will provide sufficient cushion to offer developers a guarantee scheme that protects them from profitability risk, to the point of being able to forgive a portion of the financing provided under certain conditions. They hope this will attract private financing to build 15,000 homes per year in a segment that has historically been unattractive, and channel 9 billion euros of private capital into its development.
23.000 millones
The ICO intends to leverage a portion of the 2.8 billion euros in non-refundable funds from the Recovery Mechanism that the government will inject to offer developers a guarantee scheme that alleviates their reservations about promoting affordable rentals and encourages them to invest 9 billion euros in this developing segment
However, the government’s ambitious plan has not garnered widespread confidence among private developers. From the APCE, the sector’s most representative association, they point out that financing is not the main problem for developing affordable rental housing, and that more significant bottlenecks exist, such as the lack of available land, high urbanization costs, and the tax issues arising from the fact that rental developers have to bear the VAT associated with the construction process but cannot pass it on in rental contracts.
“We don’t need a red carpet,” in reference to the president’s promise during the fund’s presentation, “but legal certainty, clear and sustained rules over time,” sources at the APCE stated, expressing their doubts about the ICO’s proposed debt forgiveness system. “It would be better if that incentive were given at the beginning in the form of a subsidy and not at the end based on conditions that are unknown and open up a threshold of uncertainty.”
