A tale of two housing booms and busts: UK and Spain

The Economist’s Global House Price Index interactive charts make it easy to compare what happened to British and Spanish house prices in the past. Unfortunately, they can’t tell us what will happen in future.

The chart above compares nominal house prices in the UK and Spain from 1987 to the present. As you can see, Spanish house price rises exploded, up more than 600pc at the peak of the boom, before falling back to just over 500pc now. UK house prices are up around 300pc over the same period. So house prices have risen a lot in both countries over the last 25 years.

Bear in mind we are still talking about nominal prices, which are partly (but not only) driven by inflation. That helps explain why prices in Spain have risen so much more than the UK. Spain’s inflation will have been higher than the UK over 25 years.

Now look at the index over the last 10 years, a period in which consumer price inflation has been broadly similar in both countries (and historically low). Nominal prices have risen by almost the same factor in both countries, but just under 100pc.

Now let’s look at real price changes, which means adjusted for inflation.

Even after adjusting for inflation, Spanish house prices are up more than 150pc since 1987, compared to around 75pc in the UK.

Over 10 years, both countries are up around 40pc.

Now look at the percentage change in real terms.

And over the last decade.

What about in relation to income and rents?

These graphs tell a story in which house prices relative to incomes are close to historic highs, but relative to rents, Spanish prices are almost back where they were 10 years ago. As far as the latter is concerned, the same cannot be said of the UK, where prices are still around 30pc higher than a decade ago.

What happens next? Sadly, there is not chart to tell us that. But if the past is any guide to the future, we can expect prices to carry on going up and down in decade-long cycles, with a long-term trend upwards.

Economist subscribers can play with the charts here

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