By Irena Beqiraj
When apartments become more profitable than factories, the government turns to taxes for a solution!
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The debate over taxing property and vacant homes should not be reduced to an ideological issue. It would truly be a political revelation of historic proportions if it weren’t for the fact that the Socialist government has never had any particular connection to the left!
This debate should be seen in a much broader context: an economy in which construction and real estate are absorbing an ever-larger share of capital, investment and lending, while the sectors needed to ensure long-term development remain very weak.
Data on construction’s share of the Albanian economy point to a trend worth noting. The sector’s share of GDP rose from around 9.5% in 2021 to 11.2% in 2022 and 11.65% in 2023, approaching 12.6% in 2025.
In some years, the sector has grown at a markedly faster pace than the economy as a whole, but its expansion does not appear to be driven solely by real demand. Construction has become one of the easiest destinations for private capital in an economy that has failed to develop other sectors with productivity and export potential. This is not simply a sector growing quickly. It is a market where prices are rising despite ample supply, while apartments remain vacant.
In short, we have an economy that has concentrated its resources in a development model where construction and rising property values take precedence over production, innovation and the creation of added value. Put simply, this is an economy where an apartment has become a more attractive investment than a factory. Lending data also show an expansion in financing for new construction and greater financial exposure to real estate.
Construction has entered a self-reinforcing cycle: rising property prices fuel expectations of further gains; those expectations attract new investors; demand for financing increases; banks become increasingly exposed to the same sector, and capital moves away from other investment opportunities. Prime Minister Edi Rama himself has encouraged this cycle, saying that property and apartment prices in Albania would double (2-fold) when the country joins the European Union.
But can a government use fiscal policy to correct an economic model that it has itself built and fostered, in which resources are increasingly directed toward accumulating real estate and less and less toward productive activities?
A recurring tax on property based on its actual value, or a tax on non-use, would raise the cost of holding property and make it less attractive to keep capital passively invested in real estate. So although these taxes are being presented as progressive, the taxes expected to be imposed on real estate should in fact be viewed as tools that could help cool an overheated market and correct the incentives that have fueled it.
But let us not forget that imposing a tax on property or vacant homes is not enough to address the economic imbalance if other alternatives for capital are not created. In other words, even if these taxes raise the cost of investing in real estate, that does not automatically mean capital will flow into production. No economic law says that, as soon as an apartment is taxed, an investor will wake up the next morning eager to open a factory!
For that to happen, conditions must be created in which investment in industry, agro-processing, technology, innovation and exports offers sustainable prospects and attractive economic returns. Otherwise, capital may shift into other sectors that are just as unproductive, or simply wait for new speculative opportunities.
Development policies are the hardest task for a government, and Rama’s governments have always failed at them. What is needed are development strategies that go beyond fiscal policy: more predictable institutions, genuine competition, infrastructure, vocational education, access to financing for productive businesses, and a climate in which long-term investment is not penalized by uncertainty and structural obstacles.
So this time, too, the government did what it knows best: it found a quick, simple and lazy solution. It has decided to tax the imbalance it has allowed and encouraged.
The government knowingly allowed capital to concentrate in construction without offering more productive alternatives. Now it wants to drive it out of construction with taxes. After all, isn’t it easier to tax the consequences of a failed model and sell it to a poor population as a fight against the rich than to go to the trouble of building a different model?
I have to admit, this is an original way to acknowledge the failure of economic policy without calling it a failure.
