Right now, the tiny Principality of Andorra is undergoing what could be Europe’s strangest housing crisis.

A mountainous microstate wedged between France and Spain, Andorra is a landlocked pocket known for duty-free shopping and beginner-friendly ski slopes. The state’s low taxes and high levels of banking secrecy have made it a powerful magnet for super-wealthy home buyers and renters. 

But the latest wave of newcomers aren’t the usual publicity-shy plutocrats who flock to low-tax zones: They’re YouTubers and other social media stars, who began setting up their webcams in rental properties in the country’s valleys before the pandemic.

Helped by the natural beauty of the Pyrenees and a near-absence of crime, real estate prices in Andorra have risen by over 30 per cent since summer 2018, forcing less-affluent locals to move across the border to Spain.

The influencer influx is just part of a wider picture of wealthier incomers seeking residency in the mini-country, which could see Andorra drift from being a low-tax jurisdiction with good living standards toward becoming a Monaco-like tax haven, with a hyper-density of super-rich residents and little room for anyone else. 

To prevent that, Andorran lawmakers are proposing sweeping moves aimed at discouraging non-residents and obliging outsiders to pay a tax on all real estate purchases, with proceeds going toward a fund to create affordable housing. But there are concerns that such measures could end up being counterproductive. 

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The principality has always been a singular place. It’s been an independent state – bar a few short breaks – since 1278. With an area roughly equivalent to that of San Jose, California, and a population of about 84,000 people, it’s among the least populated nations in Europe; its major urban area, Andorra la Vella (“Andorra the Town”), is the continent’s highest capital. 

Politically, Andorra is unusual too. The state, in customs union with the EU without being a member, is overseen by two heads of state referred to as co-princes – the President of France and the Bishop of Urgell, whose seat lies in Spain – although true executive power lies with an elected 28-member General Council.

For most of its existence, Andorra was rugged and remote, but tourism began growing in the late 20th century. Despite having no airports or train stations within its borders, more than 8.4 million visitors made their way to Andorra in 2022. 

Besides its ski resorts and strips of duty-free retailers, the state’s big draw is financial services, boosted by low taxes and high levels of banking secrecy. This transformation has made Andorra a wealthy enclave, with a higher GDP per capita than either Germany or Sweden and, as of 2022, the dubious distinction of being one of the world’s few states with more cars than people. (Andorrans also enjoy one of the world’s longest life expectancies.)

That doesn’t mean, however, that every resident can afford spiralling home prices. Andorra’s increasing appeal to outsiders could also threaten another of its unique features – its current status as the only state with Catalan as its sole official language. The local tongue is also widely spoken in Catalonia, Valencia and the Balearic Islands, but its future in Andorra might be harder to secure if newcomers who speak Castilian Spanish don’t make an effort to learn it. 

The real estate rules are designed to address both concerns. First up is a recently adopted three-month ban on non-residents buying property, a placeholder law which will be succeeded by a law levying a tax on all real estate purchases by non-residents, with the proceeds funding affordable rental housing construction. The General Council also plans to require all applicants for residency to pass an exam in Catalan in a bid to encourage migrants to adopt the local culture and preserve the language. 

But critics have expressed concerns that this approach will “turn Andorra into Monaco,” as one trade unionist told El Pais, by encouraging wealthy people seeking to buy property there to register as residents to escape the new tax. 

For the affluent, it’s not hard to become a “passive” resident – that is, someone who earns their money from a business outside the state. You need a salary three times the country’s minimum wage (currently 1,286.13 euros per month) and to invest at least 600,000 euros (S$864,012), with 552,500 euros in property and the rest as a returnable deposit.

At current average prices for the state, any property of more than 1,022 square feet would meet this target, while the minimum number of days per year spent in Andorra to retain residency is a modest 90 days. For successful entrepreneurs and professionals earning their money outside the state – a category to which most YouTubers belong – even this investment requirement can be waived, leaving the returnable deposit as the only obligation.

Those who qualify can expect an attractive package of benefits. Andorra’s top income tax rate is just 10 per cent, and residents pay no inheritance taxes or capital gains tax on any asset of which the resident owns less than 25 per cent or has owned for more than 10 years.

Another key sweetener is that Andorran banks do not share data with any external tax authorities – a perk to anyone wary or resentful of too much financial scrutiny.

Other European microstates have similarly struggled with balancing limits on newcomers.  While Liechtenstein requires prospective property buyers to have lived there for at least three years and to have gained government permission, Monaco, San Marino and Luxembourg do not bar non-residents from buying property.

While the very high prices that result from this policy are likely intentional, they pose problems for each state’s functioning. Luxembourg’s policy of free public transit, for example, was partly introduced to help subsidise the many lower-income workers forced to commute into the state daily because housing in the Grand Duchy was out of their reach.

And while Switzerland is no microstate, galloping property prices in the lower-tax banking hub of Zurich have placed the region at acute risk of becoming a property bubble.

Andorra’s proposed property tax doesn’t seem to have ruffled many feathers among its wealthy new expats, perhaps because it isn’t stringent enough to counterbalance the many advantages of Andorran tax residency. But there were some passive residents upset by the suggestion that they should not be exempt from the obligation to pass the quite basic Catalan language exam.

 In a recent viral video, popular streamer Agustin51 proclaimed that the government’s was a “dictatorship” for mandating a free 30-hour language course for non-residents. The swift online backlash against him and other YouTubers suggest that – even for people who don’t often leave the house – their Andorran honeymoon period may be over. BLOOMBERG