Bank of Spain warns there are half a million homes practically unsaleable but lack of developable land means prices cannot fall

Spanish Housing Market

A study by the Bank of Spain recommends that the government “review the procedures for managing land for development” to try to lower the price of housing in Spain, the high cost of which it attributes to the “mismatch between supply and demand”. The study, “El desajuste entre la oferta y la demanda de vivienda y su relación con los precios“, (“The mismatch between housing supply and demand and its relationship with prices“) by Lucio San Juan, an analyst at the issuing bank, and published in its latest Boletín Económico, points out that the Spanish property market is characterised by a shortage of supply and strong demand, and that both factors have worsened after the pandemic, which will neutralise any reduction in prices that may result from the rise in interest rates.

The study attributes the resistance to falling prices, on the demand side, to the profile of the buyer, which it defines as “high-income, middle-aged households (between 30 and 49 years old) and higher levels of education” that accumulated savings during the pandemic. This effect will be compounded in the coming years by an increase in the number of households due to the rise in immigration.

On the supply side, on the other hand, the study stresses that prices are being pushed up by the limited availability of housing, which is also rigid in the short term, and by the increase in the cost of materials and labour.
According to the issuing bank, during the pandemic, the mismatch between supply and demand improved, which was temporarily reflected in lower prices, because the supply of housing increased due to an increase in the number of homes being sold from inheritances (which reached an all-time high in 2021), while demand fell because travel restrictions reduced purchases by foreigners.

After Covid, however, demand has increased and purchases by foreigners soared (they were 40% higher in 2022 than in 2019), because purchases for second homes have been joined by those who have settled in Spain to telecommute, while national buyers looking for different homes (larger and with outdoor spaces) have increased.

At the same time, there has been a reduction in supply due to a drop in housing construction – which was already low before the pandemic – because during the confinement, building work was temporarily halted and the processing of visas was delayed. Thus, the study points out, housing completions fell by 5% in 2022, to 80,000 units, well below the construction that had taken place over the previous 30 years, when the average was more than 240,000 homes per year. In addition, the study points out, supply is also falling because since 2021 there has been an increase in the number of owners who have decided to use their homes for tourism.

The Bank of Spain study highlights that there is a stock of around 450,000 unsold new homes, dating from the years of the housing bubble, and that since 2018 it has practically not been reduced, which it attributes to the fact that it is no longer suited to the preferences of current buyers, due to its location, or because it does not meet the requirements of greater size, open spaces and energy efficiency that are demanded today.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.