Compared to other countries, Spaniards are still paying through the nose for housing, at least according to official figures.
The chart above, taken from research by Bankinter – a Spanish bank – shows that housing affordability is still a much bigger problem in Spain than in the UK and the US.
Housing affordability tells the story of house prices in relation to disposable income. The bigger the share of income families have to spend on paying the mortgage or the rent, the less affordable housing is.
One way to calculate housing affordability is to divide average house prices by average salaries giving you house prices in terms of years of work.
By this measure, house prices are still worth more than 6 years’ salary in Spain, compared to around 4 years in the UK and 3 in the US. That would imply that Spanish house prices are still at least a third over-valued compared to the UK, and half compared to the US.
It could be, however, that housing affordability in Spain isn’t quite so bad as Bankinter’s numbers suggest. In my opinion official house price figures do not capture the true extent of recent property price falls, making housing affordability look worse than it is.
That said, house sales have recently collapsed because banks have stopped lending again thanks to part II of the credit crunch. Even if prices have fallen 50pc or more, most Spaniards still can’t afford to pay cash. Housing affordability is a meaningless number if you can’t get a mortgage.