On the supply side, planning approvals recorded by Spain’s College of Architects finally started to fall in 2007, having risen to a record 920,000 in 2006.
In the first 9 months of 2007, planning approvals fell by 35% to 494,000, down from 756,000 in the same period of 2006. Over 12 months to the end of September 2007, planning approvals fell 32% to 658,000, down from 965,500 12 months earlier.
Planning approvals in Andalucia basically collapsed in 2007, down 79% in the third quarter, and 58% over 12 months.
Planning approvals fell the least in the Balearics, down only 10% in the third quarter, and up 6% over 12 months.
In Murcia, planning approvals were up 10% over 12 months to the end of September 2007, but fell 28% in the third quarter. This suggested that the supply side in Murcia has been slower to react to falling demand than other areas, which could exacerbate problems for Murcia in the next few years.
Planning approvals are the first stage in the construction process, and not all planning approvals turn into housing starts. If we look at housing starts we also see declines in 2007, but not by as much (this is to be expected, as planning approvals react quicker than housing starts to changes in demand).
There were 420,000 housing starts in the first 9 months of 2007, down 14% compared to the same period in 2006, and 20% if you only focus on the third quarter. The dramatic falls in planning approvals will take a bit longer to show up in the figures for housing starts from Spain’s Ministry of Housing.
Given the long lead times in the construction business, the number of new properties being completed can lag behind the demand curve. Based on figures for construction completions, this appears to have been the case in 2007.
Figures from the Ministry of Housing show that 432,000 new properties were completed in the first 9 months of 2007, down 3% compared to a year before (but down 10% if you compare Q3 2007 to Q3 2006). On the other hand, figures from the Ministry of Development (Fomento) indicate that 475,000 new homes were completed in the first 9 months of last year, a 9.4% increase on the same period 2006. Either way, lower demand has not yet translated into a corresponding fall in the number of newly-built properties coming onto the market. It is likely that around 600,000 new properties were completed in 2007, not far off the record number in 2006.
So demand is falling, transactions are falling, and planning approvals are starting to fall, but the supply of newly built properties coming onto the market is still at or near record levels. Looking one or two years ahead, the slump in planning approvals points towards a big drop in newly built properties. But in the short term the massive glut of unsold properties looks set to grow. It has recently been estimated at around 1 million properties: 500,000 newly built properties, and 500,000 resales.
© Mark Stucklin (Spanish Property Insight)