Has economic freedom been violated by setting housing price references?

In line with real estate market trends, without any consultation with the public and interest groups, referring to Article 102 of the Constitution (Powers of the Prime Minister), the Minister of Economy, Culture and Innovation has issued Order No. 1052, dated 02.12.2024 “On the approval of the average sale prices of housing in the market, according to cadastral zones, for local self-government units”, based on Instruction No. 1, dated 17.03.2023 “On the approval of the methodology for calculating the average sale price of housing in the market”.

This sectoral Order, which has approved the average sale prices of housing in the market, according to cadastral zones for local self-government units, followed by the National Housing Authority, according to the attached appendix, creates the opportunity for the reassessment of property tax and for the reassessment of the value of housing sales by referring to this reference.

According to the tables with the average reference prices with the new approval of the references, prices have increased throughout the country, where the most expensive areas are the areas of the outskirts of Tirana as well as the areas of the southern coast, where the value of a apartment ranges from 190,000 lek/m2 to 258,000 lek/m2.

Regarding this approach that refers to the market price of housing, according to the government’s assessment, ALTAX expressed its opinion with an analysis in the commentary to Decision of Council of Ministers No. 457, dated 26.07.2023.

In the analysis of the recent changes, we have submitted some comments for open discussion.

Has economic freedom been violated by the determination of housing price references in Albania in 2023 and 2024, where the government’s interest is the highest property tax assessment and citizens’ fiscal burden increases in this case?

The setting of reference prices by the government for real estate is a complex issue that may affect economic freedom and raise questions about constitutionality, especially when it interferes with the principles of the free market. To assess whether this policy conflicts with the Constitution and citizens’ rights, it should be analyzed in several key aspects:

1. Economic freedom and market intervention

The constitutional principle of economic freedom guarantees the right of individuals to act freely in an open and competitive market. Market prices in this context are determined by the forces of supply and demand without mandatory intervention by the state.

Reference prices, if used to limit the real prices of transactions, can be considered a restriction of contractual freedom, affecting the right of citizens to set prices according to the real market value.

Is it a violation?

No, if the reference prices serve only as a basis for property taxation or to combat informality, without imposing mandatory limits on real purchase prices.

But it is a violation if the references completely replace market value and limit the freedom to contract according to market conditions.

2. The principle of equality before the law

Reference prices may violate equality before the law if:

1. They are set arbitrarily or discriminatory for certain areas or groups.

2. They promote inequality between citizens who have properties with different real values, but are taxed equally based on prices set by the state.

If the references do not reflect the economic reality of the area or market, citizens may face unfair taxation, paying more or less than they should according to the real value of the property.

3. The role of the state in the real estate market

In a market economy, state intervention should be limited and justified only when:

1. There are overriding public reasons, such as the fight against informality or tax evasion.

2. The intervention helps create a fair and transparent market, without harming competition or the rights of individuals.

The determination of price references for housing in Albania in 2023 and 2024, as part of the basis for calculating property tax, can be seen as an interference with economic freedom, but this depends on how economic freedom is understood and implemented in a country.

In a more in-depth argumentation of the main issues related to the above submissions are:

1. Impact on Economic Freedom.

Economic freedom includes the right of individuals to manage their assets with a minimum of state interference. When the state determines mandatory references for property prices, it affects the ability of the market to determine prices freely. This can be considered a restriction of economic freedom, especially if these references do not reflect the real market value.

2. Increase in Fiscal Burden on Citizens.

If the references lead to an artificial increase in the price of properties for fiscal purposes, the tax burden on owners increases. This can be seen as an injustice in relation to the right of citizens to a fair and proportionate tax system.

3. Public Policy Objective.

The government may argue that the main objective is to ensure a fairer tax system and to avoid tax evasion. But if the main interests are to increase budget revenues at the expense of citizens, this can be seen as a violation of the balance between the public interest and individual rights.

4. Transparency and Public Consultation.
A key element is whether this change has been made in a transparent manner and with public consultation. If citizens and interest groups are not involved in the decision-making process, this can be considered a violation of the principles of a free and fair society.

5. Effect on the Property Market.
If the references are not in line with market reality, they can create economic distortions, affecting property transactions and the possibility of investment in this sector.

Although the establishment of price references can be justified as a measure to increase state revenues and combat tax evasion, it can limit economic freedom and increase fiscal inequalities. For a full analysis, it is necessary to examine whether the references are based on objective and direct market data, and whether citizens are given the space to challenge these assessments when they are unfair.