Given the real demand for housing in Spain, how long will it take for the overhang of newly built properties to sell, assuming prices were to fall to an accessible level, and banks were to open up the mortgage tap again?

A year and a half is the answer, according to a recent article in the Spanish press. And in the meantime Spanish developers are reluctant to start new projects until the existing stock of unsold, newly built properties has been absorbed by the market.

Going by the figures of the National Construction Confederation (CNC) there are currently around 650,000 new properties on the market, a figure that is bound to grow as more new developments are finished. There were 500,000 housing starts in 2007, and a record 675,000 construction completions.

But whilst housing starts have been running at anything between 500,000 and 900,000 in recent years, the real demand for housing, based on household formation, is estimated at around 450,000 homes a year. That means it will take a year and a half for demand to absorb all the new properties, without taking into account all the resale properties for sale. When these are factored in the number of properties currently on the market stand at around 1 million.

With so many unsold properties on the market, and with banks slashing lending to both developers and home buyers, the number of housing starts is expected to collapse to around 200,000 units this year . This could mean the loss of 600,000 to 700,000 construction sector jobs in 2008, which, in turn, could push the Spanish economy into recession. A recession would put further downward pressure on property prices in Spain.