The Spanish Socialists won the most seats in last Sunday’s General Election by a wide margin, but not enough to govern on their own. To get a working majority they will either have to turn to the hard-left plus Catalan / Basque nationalists, or, to a liberal party more to the right of them. The decision is likely to have an impact on the economy, housing policy, and the prospects of Spanish real estate market in the years to come.
The Socialists won 29% of the vote and 123 seats in the Congress of Deputies, up from 85 seats in 216, whilst the right-wing PP party (Partido Popular), in power most of the time since 2011, won 17% and 66 seats, down from 137 in 2016. The liberal / centre right Citizens party (Ciudadanos) won 57 (16%) up from 32 in 2016, and the hard left Podemos party got 42 (14%), down from 71 in 2016.
The big winners were the Socialists (+38) and Citizens party (+25), and the big losers were the PP (-71), punished for their corruption, and the hard-left Podemos (-29), punished for their infighting and hypocrisy. A new party on the far right called Vox had a good night wining 24 seats with a traditionalist, anti-immigrant and anti-regional agenda. The overall majority is 176, so the Socialists either have to do a deal with Podemos and nationalists parties from Catalonia and the Basque Country, or with the Citizens party to their right.
So far the Socialists have been playing it cool, saying they plan to go it alone as a minority Government, whilst Podemos, whose leaders are desperate to get their hands on power, say the only option they will consider is a coalition Government with them in it. Citizens, who want to displace the PP as the main opposition, have ruled out any collaboration with the Socialists, despite pressure from the EU, banks, and business leaders who like the idea of a moderate coalition between Citizens and the Socialists. The PP is busy licking its wounds, and all parties are trying to position for upcoming municipal, regional, and European elections. The political pressure to avoid compromise is likely to continue until these elections are out the way, so we probably won’t know which way the Socialists are going to lean until after the 26th of May.
Left or right?
If the Socialists end up doing a deal with the hard-left Podemos party and nationalist parties from Catalonia and the Basque Country, the resulting administration is more likely to pursue left-wing policies that are, in my opinion, bad for the economy, bad for public finances, bad for job creation, hostile to foreign investors, and more interventionist in the housing market. None of this would be good for the Spanish housing market but, paradoxically, might result in restricted supply and higher housing costs in the most sought after areas of Madrid, Barcelona, and coastal hotspots.
If the Socialists end up doing a deal with Citizens, the policies of the next Government are likely to be more positive for the economy and the housing market, though I doubt that a Socialists-Citizens collaboration would solve problems like housing affordability, high transaction cost, inflexibility, and the lack of transparency. No Spanish Government of any stripe has done much to promote a healthy housing market in recent decades.
If the Socialists can’t reach agreement with either side then fresh elections will be along in a few months. In the meantime, the Spanish housing market chugs along with moderate growth in sales and prices, though arguably below its potential, whilst recent signs point towards a potential cooldown in the making. The policies of the next Government will have a considerable impact on the Spanish housing market in the years to come, but we’ll have to wait until June or later to find out what those policies will be.