How long will it take to absorb the glut of new homes?

A recent article in the Spanish daily El Mundo warned it could take up to a decade for the market to digest Spain’s glut of newly-built homes. I worry it could take longer than that.

Spain built too many new homes in the boom and now there are something like 700,000 to 1 million new homes languishing on the market in search of a buyer. If you include resale properties, the stock of homes for sale in Spain could be as high as 2 million.

How long will it take for the market to absorb these homes? It’s an important question, as the building industry will not grow and create jobs until the glut has been tackled, at least to some extent. But without jobs, it’s difficult for people to afford homes. A bit of a catch-22.

One of the main variable that determines demand for homes is the rate of new household formation. In the boom years, when immigrants flooded in to work on construction sites, it was running at around 400,000 / year (330,000 – 441,000), according to figures from the INE. Now it has dropped to around 100,000.

So if you assume there is demand for around 100,000 homes a year, 50pc of which will buy newly-built homes, and something like a million new homes on the market, it could easily take 20 years to mop up the glut. By which time new homes will be old homes that have never been occupied, and almost impossible to sell.

With a bit of luck, the Spanish economy will perk up in a year or so, and household formation will increase, and with it the demand for new homes.

But even if that happens the legacy of the boom will be a lot of new homes that nobody really wants because they are unattractive and in undesirable locations.

Thoughts on “How long will it take to absorb the glut of new homes?

  • Campbell D Ferguson, Chartered Surveyor in Spain says:

    It’s more than buyers that are needed, it’s occupiers who are required. Investors are buying groups of properties which takes them off the official bank owned we built statistics, but then who is to buy or occupy the individual apartments, etc? Rentals will take some and holiday homes will take up others, but as the Government has obviously discovered the only way to increase the take up is to bring in more individual buyers from outside Spain. Those will work in the international coastal areas and to a lesser extent around the major cities, but for an inland town that’s doubled its housing with only natural population increase there can be little hope even if they were given away. These have to be abandoned and stated as such so that they can be removed from the statistics, which are being used as a misleading guide to the economy by international financiers.

  • Spain may have to accept that some of its new houses were so badly located that they will never be absorbed by the market. Perhaps the best way to put a dent in the glut and in unemployment is to knock down a couple of hundred thousand of the worst ones.

  • In many US cities the local council has purchased the worst houses, flattened them and have created parks, which in turn is encouraging families to return to the neighbourhood. Spanish towns should do something similar – probably the best solution for a lousy situation.

  • Campbell & Alex, you are both correct.
    SO MANY of these builds were along the East>West Coast AND built specifically for foreign buyers – with utterly ridiculous prices to match.
    The prices have now taken care of themselves – which leaves just potential buyers.
    There is a clearly definitive level of demand from non-foreign buyers in the coastal areas: just as there is a clearly-definitive head of population – and employment.
    In the main, SSpanish peole DO NOT want to live in a mainly foreign-owned ghetto. NEITHER do they share the same desire to live on a Golf Course, with limited (or even non-existent) shopping facilties, and colossal urbanisation fees. Least of all do they wish to buy a property that was built with scant regard to “quality” building prectices, where the visual aspect was deemed vastly more important than being suitabe for purpose. A pokey little apartment may have suited as an occasional holiday home, but for an even mid-sized family to live on a full time basis – hmmm!

    But when one turns to the “Inland” developments, where there is even less demand: where every land owner who wished to trade in his 4-leg drive donkey for a 4 wheel drive Merc, and sold off his bit of land to a get-rich-quick Developer, the propsects of selling these properties off are virtually non-existent.
    You’re rght Alex, tme to get out the steel demolishing ball.

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