A new study by consultants Acuña & Asociados estimates there are almost two million homes for sale in Spain, which will take 10 years to sell.
The 2 million figure is comprised of newly built homes and resale properties, which means the total housing inventory on the market.
That sounds like a lot, but is it? It depends how it compares to the overall housing stock, and how that compares to other countries. It also depends upon the turnover rate – i.e. how quickly homes sell in Spain.
Assuming there are 26.5 million residential properties in Spain (there were 25.8 at the end of 2010, according to Government/Fomento figures), that means that roughly 7.5pc of the housing stock is on the market.
I don’t have figures from other countries to compare to (after a fruitless search), but I wouldn’t be surprised if it is a lot higher the EU average. All of which would suggest that Spain has a big oversupply of property for sale, compared to other counties. I’m sure many readers will be thinking “tell me something I didn’t know.”
Another way to judge the oversupply is to estimate how long the inventory might take to sell, using the current sales rate and estimates of future demand (household formation). Acuña & Asociados calculate it will take 10 years for the inventory to sell, assuming household formation of 200,000 a year between now and 2020.
10 years to turnover the current housing inventory (for sale) is a big problem that will be with us for years to come. All of which suggest that downward pressure on prices won’t go away anytime soon. Good news for (cash) buyers, but bad news for builders and vendors.
Acuña & Asociados also estimate there is a land-bank to build another 4 million homes, which won’t be needed for years. Guess who owns the land? Basically, the banks, either directly or indirectly.
If these figures are correct, how much do you think that land is worth? You don’t need an economics degree to work it out, and what it means for the balance sheet of the Spanish banking system.
The only way Spain is going to get out of this hole is a combination of 1) economic growth creating jobs and demand for homes, 2) selling lots more properties to foreign buyers, and 3) high inflation reducing the real value of debts and making property an attractive investment. I’m expecting the inflation, but I’m not so sure about the other two.