Barcelona City Hall pushing social housing quotas on all new projects, which critics say will backfire

new development for sale in Barcelona

New development in Barcelona

Barcelona City Hall, run by Mayoress Ada Colau, who rose to prominence as a housing activist and leader of the PAH protest movement fighting evictions, is pushing a plan to force private developers to dedicate 30% of all new projects in Barcelona to social housing, a move critics say will backfire and lead to fewer new homes, and higher house prices in Barcelona.

The 30% social housing quota was proposed by housing activist groups including Colau’s PAH (Plataforma de Afectados por la Hipoteca) and the Tenants Union (Sindicato de Inquilinos) to increase the supply of affordable housing in Barcelona. Developers warn that forcing this quota on all new projects will discourage building, increase scarcity, and drive up new home prices for everyone.

Despite the outcry from developers, the measure successfully passed its first hurdle on Monday, when the City’s Town Planning Commission (Comisión Municipal de Urbanismo) voted to change Barcelona’s General Metropolitan Plan (known as the PGM), to force new projects and renovations for sale or rent above 600 m2 to dedicate 30% of space to social housing. (BComú, ERC, PSC y la CUP were all in favour with 23 votes, PDeCAT and Ciudadanos abstained, and the PP voted against.)

Colau’s quota now needs definitive approval by the City Council, and ratification by the Town Planning Department of the Generalitat – Catalonia’s autonomous regional government. That will have to wait until the autumn and, if successful, will apply to all new licences granted from now. However, the Generalitat’s spokeswoman Elsa Artadi has told the press they have doubts about the new measure, and Damià Calvet, a regional government official, says it oversteps the authority of Barcelona City Hall, so definitive approval is not guaranteed. Echoing developers, Calvet also warns the 30% cuota will have the “opposite effect” of reducing pressure on housing costs.

The local press reports that Barcelona’s planning department has been inundated with new planning applications from developers trying to get approval before the quota comes into force. Lluís Marsà, President of the Catalan Association of Developers and Builders (APCE) says developers have not been given any details about the new measure, and were never consulted in the slightest about a change that will have a huge impact on their industry. He branded the measure as “electioneering”, and says it may be illegal.

Opposition politicians point out that the gap between the demand and supply of affordable homes has only grown since Colau came to power, after she put the brakes on new home building. Others argue City Hall should start building social housing on the land it already owns in Barcelona, including 70 city-centre plots, rather than force the private sector to pay for public housing. Jordi Martí, of Pdecat, describes the measure as an “improvisation, lacking rigour, with no study of the economic impact…….a smoke screen to cover for her incompetent administration these last three years.”

Also passed on Monday was a plan to give City Hall a preemption and retraction right on the purchase of buildings and plots city-wide in order to “prevent cases of gentrification”.

Colau celebrates with housing activists

After the Town Planning Committee meeting on Monday, Colau joined a gathering of housing activists in front of City Hall claiming the measure will create 300 to 400 new flats a year for social housing (video). She said it will force developers “who have earned obscene profits, without any responsibility for the pain they have caused through speculation” to shoulder their share of the responsibility for providing affordable housing in the city. She wanted to put a stop to all new planning approvals until her quota comes into force, but had to give this up in order to get her plan passed. She congratulated her supporters for this “historic agreement” and “change of paradigm” whilst encouraging other cities in Spain to follow her lead.

Analysis

Barcelona property news

Just one new development on the horizon in Barcelona

It helps to understand that Colau and her friends in housing activist groups see all developers and investors, especially foreign investors, as nothing but ‘speculators’ and ‘vulture funds’, and never miss an opportunity to refer to them in these terms. All private investment that improves an area is called ‘gentrification’ – a dirty word. They are particularly hostile to foreigners investing in Barcelona. Carlos Macías, Colau’s successor as PAH spokesperson, who now has a cushy consultancy gig at City Hall, has talked about the city being “colonised and invaded.”  This is where Colau is coming from when developing housing policies for Barcelona. Anyone building homes for profit is simply an evil speculator.

To put Colau’s proposal in context of current building activity, work has begun on 730 new homes so far this year in Barcelona (1,373 in 2017), and 322 have been completed. In the boom years there were around 5,000 housing starts each year, falling to just 493 in 2012, according to data from the Generalitat. Colau assumes that developers will continue to build at least 1,000 new homes each year, 30% or 300 of them for social housing, happily financed by foreign capitalists getting little or no return. How likely is that?

A 30% social housing quota mixed in with private housing on all new projects will ramp up the risks and costs for developers, making projects  harder to sell, and forcing up prices for other buyers, who will have to pay more to compensate for losses on social housing (unless land or building prices fall dramatically to compensate – very unlikely in Barcelona). Expected risk-adjusted returns will fall, putting off investors already unnerved by the constitutional crisis in Catalonia. You don’t need a degree in economics to see that Colau’s quota will reduce house building and the supply of new homes in the city.

Developers who bought land or buildings on the assumption of 100% private housing and don’t yet have planning permission will get hit the hardest, as their business plans are toast in the light of Colau’s cuota. There are some provisions in the new proposal to reduce the social housing quota on acquisitions made from 2016 onwards, but they won’t make much difference.  According to press reports the PAH have warned private developers they can “continue doing business, but not at any cost.” It would have been more accurate to say “not at any profit.”

The preemption right change could also deter new development. Imagine going to all the effort and cost of underwriting and due diligence to make an offer on a site, only for City Hall to buy it from under your nose unless you make a high offer. This would give City Hall an option on all good deals, discouraging private investment.

Private contribution

Getting private developers who benefit from planning permission in urban areas to contribute towards affordable housing is not a bad idea in itself, and happens in cities like London, where developers can build social housing without having to mix social and private housing in the same building, or can contribute financially to social housing in the municipality instead. Colau’s team claim they have benchmarked other European cities, and are bringing the best ideas to Barcelona. Yet forcing developers in Barcelona to mix such a high level of social housing in all new projects will backfire with unintended consequences, if it ever gets definitive approval.

Electioneering

Ada Colau stitched together a lefty coalition to become Mayoress of Barcelona three years ago campaigning to make housing more affordable, but housing costs have only risen on her watch, in part because she put the brakes on new development, and made the town planning department uncooperative (developers tell me), driving up the cost, time, and risk of building homes in Barcelona, which feeds through into higher prices. But municipal elections are coming next year, and promising to force ‘speculators’ and ‘vulture funds’ to build and pay for new affordable housing is bound to play well with her base, and please her friends in various housing activist groups. So, as the APCE have pointed out, this is probably as much about electioneering as anything else.

If implemented, Colau’s quota would probably lead to a slump in new home building in Barcelona, increased scarcity, fewer affordable homes, and higher prices for those who don’t qualify for social housing. Her promise of 100 new homes for social housing built each year sounds unrealistic.

However, I suspect that Colau’s quota will never be implemented, as I imagine it will be blocked either by the Generalitat or the courts, but some damage has already been done. Barcelona definitely needs intelligent solutions to provide more affordable housing, but this economically illiterate proposal will only discourage investment in future housing. Unless demand falls, I expect it will only contribute to upward pressure on house prices in Barcelona.

+ Ajuntament de Barcelona press release (in Catalan)

About Mark Stücklin

Mark Stücklin is a Barcelona-based Spanish property market analyst, and author of the 'Spanish Property Doctor' column in the Sunday Times (2005 - 2008).