Spain’s housing market is broken and urgently needs fixing, argue a group of top-flight economists from Fedea, one of Spain’s leading economic policy think tanks.
In a new report just released, ‘For a Housing Market that Works: A Proposal for Structural Reform’ (report only available in Spanish), a group of economists at Fadea, including Pol Antràs of Harvard University, Luis Garicano of the LSE, and Javier Díaz-Giménez of IESE Business School, explain how and why Spain’s housing market should be fixed to reduce social problems and help the economy recover.
The report identifies a dysfunctional rental market as lying at the heart of the problem, causing serious economic and social consequences such as a bloated real estate sector, low productivity, over-indebted families, unaffordable housing, and low labour mobility.
Just 13% of Spanish households live in rented accommodation, compared to >40% in Germany and France, and around 30% in the UK. The report blames Spain’s regulatory framework and calls for immediate changes to liberalise the market.
For example, the law restricts rental contracts, which makes it difficult for landlords and rental clients to agree conditions that might suit both parties. Even the Governor of the Bank of Spain is critical. “It’s ridiculous that the law prevents landlords from renting their properties for less than 5 years, even if tenants agree,” he told the Spanish press.
Low labour mobility, reduced access to housing, high levels of unsatisfied demand for housing (especially amongst the young, as 65% of Spaniards between 25-29 live at home with parents, compared to 20% in France, Holland and the UK), and a glut of empty homes are all consequences of Spain’s small rental market.
To encourage renting over buying, and address other structural problems in the housing market, the report recommends 4 urgent policy steps:
1. Liberalise rental contracts and give landlords better legal protection.
2. Remove all fiscal incentives that encourage buying over renting.
3. Stop selling social housing and offer it for rent instead.
4. Reduce or do away with taxes on property sales such as VAT and transfer tax.
These steps should help mop up Spain’s housing glut, rebalance the market, improve access to housing, increase the incomes of small landlords, reduce the impact of the economic crisis on household budgets, and help reduce unemployment, argue the economists from Fadea.
When experts of this calibre call for immediate action to solve a serious problem the government should sit up and listen. Sadly, the signs don’t look good.
Housing market statistics
The Fadea report included some housing market statistics that can be summarised as follows:
– 1 million empty properties in Spain, the equivalent of 3 years of sales, compared to just 9 months of sales in USA.
– 16% of Spain’s housing stock lies empty, an exceptionally high level compared to other countries.
– 65% of Spaniards between 25-29 live at home with parents, compared to 20% in France, Holland and the UK.
– Just 13% of Spanish households live in rental accommodation rent, compared to >40% in Germany and France, and around 30% in the UK.
– Spanish property prices doubled in real terms between 1999 and 2007, only comparable to the UK.
– Spain accounted for two thirds of all the homes built in the EU between 1999 and 2007.
– The average home in Spain cost 7.7 x average disposable household income in 2007, compared to just 3.6 x a decade earlier.
– 95% of Spanish mortgages are variable rate