Spanish rental prices keep falling as house prices stabilise

Spanish and UK house prices as a multiple of rental income, compared to long term averages
Spanish and UK house prices as a multiple of rental income, compared to long term averages, from The Economist

The relentless decline in rental prices suggests the market is still over-supplied, and though house prices in relation to rental incomes have stabilised close to their long-term average, falling rents could mean more pain to come.

The average price of renting a home in Spain fell by 0.4% in September compared to the same month last year, according to the latest consumer prices figures from the National Institute of Statistics (INE).

Spanish rental prices have now fallen for 30 consecutive months in a sign that the market is still oversupplied with housing, as landlords who can’t sell turn to the rental market instead.

Rental prices fell in all regions with the notable exception of Catalonia (+0.2%) and the Balearics (+0.2%). Rents fell the most in La Rioja (-2.6%), Madrid (-1.1%) and the Valencian Community (-0.8%). They also fell in Murcia and Andalusia (-0.5%).


According to one theory, house prices should reflect cash flows from rents, allowing house prices to be valued as a multiple of rental income, like the price/earnings ratio is used to value equities trade on stock markets.

By this measure, Spanish house prices are now reasonably close to their long-term average, according to data gathered by The Economist magazine for its global house price index.

As illustrated by the chart above, Spanish house prices as a multiple of rental income became wildly over-valued in the boom years, reaching a peak of 88% above the long-term average in Q3 2007 , but have subsequently crashed to 10.8% above the long-term average (Q4 2014). Spanish rental prices have fallen, but house prices have fallen further, bring the price against rents ratio down close to the long-term average.

The same cannot be said for house prices in the UK, which are now 47% above the long-term average, and close to the record high of 55% reached in Q3 2007, also shown in the chart above

The Spanish price to rents ratio has been recovering since bottoming out in Q4 2013, suggesting that house prices are now increasing relative to rents (or falling more slowly than rents). This is borne out by the latest official figures (where the The Economist gets its data), showing Spanish house prices rising by 4% in Q2, and rents falling by 0.4% September, as reported above.

But if rental prices continue falling, that’s bad news for house prices (at least as far as owners and vendors are concerned), and calls into question any recovery outside of some localised hotspots like Barcelona and Marbella, where the market is boosted by foreign demand.

SPI Member Comments

Thoughts on “Spanish rental prices keep falling as house prices stabilise

  • Let’s not compare the UK with Spain .
    Spain and the way it is run is like a third world country, hopefully when they finally come out of this mess that could take twenty years they might change.

  • It is amazing how the greed of man can destroy the lives of people who have contributed to the relentless greed of everyone in the housing sector, Sure everyone is in it for a profit but profit does not necessarily have to be greed.We are too dependent on external love affair or the eternal search for our true beloved and set up so many expectations from each other that we end up in disappointments. It’s only when we come back to the true beloved within, is when all our hungers are taken away. We vibrate in such a different way that even though we enjoy, love and treasure every moment of our relationship we are no longer dependent on the perfect soul mate because we are fulfilled within ourselves. We don’t need to have that luxury housing and the debt that has poisoned so many people with Greed- We see life through the eyes of our essence, acknowledge beauty and perfection in everybody, and need nothing from them. We are able to see the much bigger reality rather than being locked into viewing life through human eyes and human conditioning where we often see the plane of duality, the good, the bad, the light, the dark, the injustice, the glory.

  • I really don’t know what point you are making,but since time began the humans works on two things Greed and Fear that’s all.
    The point I am making Spain has six hundred thousand houses for sale at the moment when most of Northern Europe have not got enough.
    If you have had any dealings with the Spanish authorities you will know why
    this is .

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