New Housing Starts Outnumber Completions For First Time Since Crash

Years of pent-up demand accumulated during the crisis is finally turning into sales driving a recovery in home building, according to a recent article in the Spanish financial daily Cinco Días.

Adaptation and translation of an article published by Cinco Días.

The improvement of the job market, and the return of mortgage lending have meant that demand for property, partly pent-up during the worst years of the crisis, is gradually returning to the sector to take advantage of low property prices in many areas. This explains why, during 2014, property sales went up for the first time, and why the stock of new-build properties is being absorbed more quickly.

As a result of this surge in purchases, cranes have started to reappear, particularly in places that managed to reduce the excess supply of new properties for sale during the crisis years. And the statistics, as usual, provide the proof. 2014 ended with 34,873 home starts, a slight increase of 1.7 per cent on the previous year, but still well off the 865,561 properties that were started in 2006, the highest on record. Even so, at the end of last year more properties were finished, 46,795 to be exact, a figure, however, that has been in freefall since it reached its peak, also in 2006, of a total of 651,427 finished properties.

Research carried out by the Spanish Ministry of Development with data from technical architects’ associations, shows that in 2015 both these figures have started to reverse their trends. In the first two months of this year, a total of 7,640 new builds were started, 48.2 per cent more than the same period last year and for the first time since 2007, more than the 6,637 new builds that were finished during last January and February. This volume of completed new builds is 26.7 per cent below the one registered 12 months earlier, which suggests that if both trends continue in the short term, one clearly on the increase and the other quite the opposite, 2015 will be the first year since the crisis to end with more new builds started than finished, a real sign that recovery, still in its infancy, is consolidating.

UNEVENLY DISTRIBUTED AROUND SPAIN

Spanish property experts, developers, banks, estate agents, cooperatives and the authorities are convinced a recovery is underway, since all the factors that influence the market (employment, financing and low prices) seem to be working together towards it. However, this reactivation in new development will be very unevenly spread.

The areas where sales of homes have increased the most, such as Madrid, Barcelona and their suburbs, are where most new developments are starting. The Mediterranean coast is another area where most sales are taking place, but there it’s true that this is due to the demand from foreign buyers, and the need to start new developments is not as clear since supply is still abundant. “Only in very specific areas of the coast where there’s no product that meets current demand will building start again this year,” one consultancy company explains.

INVENTORIES REDUCED BY ONE THIRD

The managing director of Research Services at the Bank of Spain, José Luis Malo de Molina, recently complained that it still isn’t possible to put a figure on the stock of new builds that remain unsold or unlet.

And he was right since there’s no official data, just approximate figures compiled by the Ministry of Development, and rather belatedly at that (the latest report published on their website registers the estimated volume until December 2013). However, the Spanish Confederation of Association of Construction Products Manufacturers (CEPCO in Spanish) carries out reasonably comprehensive studies quarterly, although “their objective isn’t to state the exact number of properties in stock, but rather to give an approximate idea and particularly, to analyse their trend over the years studied”.

This research, to the end of 2014, estimates that excess supply is around 439,617 properties, 36.5 per cent less than in 2010 when it reached its height of 692,560 properties. This means that, despite the crisis, more than a third of excess supply has been absorbed, a factor that all experts believe is a priority for the market to regain the balance between supply and demand it lost during the boom years, and the later bursting of the bubble. For every 100,000 inhabitants of Spain, the excess housing inventory has gone down from the 1,496 properties it reached in 2010 – the highest ever – to 949 in 2014.

Spanish Property Insight adapts and translates selected articles from the local press for the benefit of non-Spanish speakers.

This translation is based on the following article (in Spanish): Las casas iniciadas superan por primera vez a las terminadas