Housing Affordability Still A Problem For Local Buyers

spanish house prices

House price evolution, Sociedad de Tasación: Red = all housing, Blue = new build

Spanish families still need 7.8 years of gross household income to afford to be owner-occupiers, according to the Sociedad de Tasación (ST) valuation company. The figure is a long way from the four years recommended by experts as an indicator of reasonable housing affordability.

The Balearic islands are the most expensive Spanish region to buy a property in relation to local income, since there the average home costs 15.8 years of gross income. At the opposite end is Murcia, where house prices are much more affordable.

ST calculate housing affordability using their own valuations for house prices, and data from the National Institute of Statistics (INE) for average incomes.

Regions with higher-than-average affordability ratios are Navarra (8.2 years), Catalonia (8.2 years), the Basque Country (8.9 years), Madrid (9.8 years), Cantabria (9.8 years) and the Balearics (15.8 years).

At the other end of the scale, the most affordable regions are Murcia (5.6 years), Extremadura (5.8 years), Castille La Mancha (5.8 years) and the Valencian Community (5.9 years).

Although current housing affordability ratios suggest house prices are still too high in some regions, there was a time when the situation was considerably worse. The national average reached 13.7 years of gross income in the boom years, and the least affordable region was the Balearics, where one needed 23.5 years of gross income to afford a home.

The average of 7.8 years of gross income calculated by ST contrasts with the average obtained by the Bank of Spain, who claims that a property costs 6.3 years of annual income.

The problem with this housing affordability ratio analysis in regions like the Balearics, where foreign buyers are a big or dominant part of demand, is local income levels are almost meaningless to richer foreign buyers, who tend to buy with savings and enjoy higher incomes. Average Balearic house prices might be high compared to local incomes, but not necessarily to affluent foreign buyers attracted the region. So housing affordability concerns are not particularly relevant to second home markets on the coast.

PROPERTY PRICES IN Q1

Average property prices remained stable in Q1, at €1,316 per square metre, down slightly from €1,326 per square metre in Q4 2014, according to ST data. House prices were up 3.3 per cent over 12 months, the third consecutive quarter of annualised increases.

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