Sharp improvement in housing affordability as property prices come down

The cost of property relative to income, known as housing affordability, has improved sharply this year as Spanish property prices have tumbled with the housing crisis. The percentage of annual gross income that Spanish families have to spend on financing the purchase of a home (taking into account tax deductions) has fallen from 40.3% in June last year to 31% now, according to new figures from the Bank of Spain.

The housing affordability ratio deteriorated from 20% in September 1999 to 43% in September 2008. As a rule of thumb experts recommend that families spend no more than 33% of income financing the cost of buying their home. Taking into account the recent improvement, the housing affordability ratio is now back to where it was in September 2006.

As a result, a typical Spanish family buying in the second quarter of the year had to spend 6.8 years of gross income to buy a home of 94m2.

Of course the housing affordability ratio is only improving for those people in Spain who still have a job. More than 4 million Spaniards are now unemployed, making it difficult for them to afford housing whatever it costs.

SPI Member Comments

One thought on “Sharp improvement in housing affordability as property prices come down

  • Has around 30% not always been the desirable figure that makes the overall equation work and what banks used too (in the sensible days) calculate mortgage offers around? Hopefully everyone has now learnt that some financial models just cannot be changed unless you want another crisis aka crash.

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