A recent article in the Spanish daily El Mundo warned it could take up to a decade for the market to digest Spain’s glut of newly-built homes. I worry it could take longer than that.
Spain built too many new homes in the boom and now there are something like 700,000 to 1 million new homes languishing on the market in search of a buyer. If you include resale properties, the stock of homes for sale in Spain could be as high as 2 million.
How long will it take for the market to absorb these homes? It’s an important question, as the building industry will not grow and create jobs until the glut has been tackled, at least to some extent. But without jobs, it’s difficult for people to afford homes. A bit of a catch-22.
One of the main variable that determines demand for homes is the rate of new household formation. In the boom years, when immigrants flooded in to work on construction sites, it was running at around 400,000 / year (330,000 – 441,000), according to figures from the INE. Now it has dropped to around 100,000.
So if you assume there is demand for around 100,000 homes a year, 50pc of which will buy newly-built homes, and something like a million new homes on the market, it could easily take 20 years to mop up the glut. By which time new homes will be old homes that have never been occupied, and almost impossible to sell.
With a bit of luck, the Spanish economy will perk up in a year or so, and household formation will increase, and with it the demand for new homes.
But even if that happens the legacy of the boom will be a lot of new homes that nobody really wants because they are unattractive and in undesirable locations.