Paradox of glut and shortage on the horizon as planning approvals continue plunging

Planning approvals were down 59% to 102,555 over 11 months to November last year, show new figures from the Ministry of Development. Planning approvals for all of last year are on track to be the lowest for more than 20 years.

Planning approvals for blocks of flats fell the most, by 61% to 77,440 units. Detached family homes fell by 50% to 25,000.

Boom and Bust

From 1999 onwards planning approvals galloped away on a wave of cheap money that fuelled Spain’s deranged construction boom. Planning approvals peaked at 866,000 in 2006, though according to figures from Spain’s College of Architects they went even higher that year – to 921,000. They have dropped off precipitously since then, throwing millions of construction sector workers out of work.

What does this mean? Firstly, over-building in the last decade means there is now a glut of new property for sale that will take years for the market to absorb. That will depress prices in the segments affected until the glut has been moped up.

Secondly, it means that Spain’s construction sector is being decimated to such an extent it could take a decade or more to recover once the collapse in activity bottoms out. Paradoxically that means that, alongside a massive glut of new properties that nobody wants, there may be a shortage of new properties of the type that some market segments do want.