Housing affordability a hot topic in next Sunday’s municipal elections as “speculators” and “vulture funds” are blamed for rising housing costs

Barcelona property market rent controls housing affordability election issue
Barcelona, where rising housing costs are being blamed on “speculators” and “vulture funds”

As Spain goes through an election cycle, left-wing parties have put housing affordability at the top of the agenda, and blame “speculators” and “vulture funds” for the rising cost of housing in some areas. Their policy proposals will not make housing any more accessible in hot markets like Barcelona, but they have succeeded in framing the debate and demonising investors.

It is true that housing costs, both purchase and rent, have been on the rise in some parts of Spain since they bottomed out in 2014 after Spain’s real estate crash. Housing costs have been rising from a crisis low, rather than just going up and up. And in many parts of the country, rental and purchase prices are still falling.

The debate is mainly about the cost of primary housing in big cities, but also affects tourist destinations like the Balearics, where second home owners and tourists compete with locals for accomodation.

Barcelona is a good example of how prices went up, then down, and now are rising again. If you want to buy a home in Barcelona you will find that asking prices are up 33% in five years, according to the property portal Idealista.com, but compared to the peak of the boom in 2007  prices are still 5% cheaper, and back then there was little debate about housing affordability.

When it comes to rental costs in Barcelona, prices in terms of €/m2 have risen by 32% since 2014, according to City Hall data, but only by 10% compared to 2008. So rents are up, but only 10% in nominal terms over a decade.

Housing in Barcelona is still relatively cheap compared to other leading cities in the world, especially in the West, but the problem is low incomes in Spain. Housing costs are high relative to local incomes, whilst being reasonable relative to housing costs in other countries.

Municipal election political pamphlets in Barcelona
Municipal election political pamphlets in Barcelona

With Spain going through an election cycle with a General Election just behind us and regional, municipal and European elections to come next weekend, left-wing parties like the neo-Marxist Podemos have made housing affordability a key issue and forced other parties like the Socialists to tack left on the question.

Barcelona is a good example of how left-wing housing activists are driving the debate. The current Mayoress Ada Colau was the leader of a housing activist group called the PAH, and used that as a springboard to take over City Hall. The PAH, who started out protesting against bank foreclosures, now target developers, funds and landlords in a drive to demonise, and have the full support of Ada Colau and other hard-left outfits.

Podemos, who are currently trying to negotiate a power sharing agreement with the Socialists to run the national Government in Madrid, and Colau’s Barcelona en Comú affiliate party, make clear in their manifestos they think that housing costs are being driven up by “speculators” and “vulture funds”, and propose imposing social housing quotas of up to 50% on private developers, forcing the private sector to provide social housing, and imposing rent controls based on some formula yet to be defined.

It should be obvious that rents are rising in some areas because demand is higher than supply in those areas, not because of a monopoly or cartel of landlords who can manipulate the price. The rental market in Spain is highly fragmented, so a cartel is impossible. What happens is that thousands of small-scale landlords renting out a flat or two find people queing up to rent, which gives individual landlords pricing power and allows them to charge a higher price than if they had little demand. This pushes up the cost of rent.

Would rent controls solve the problem? Of course not. Rent controls do not increase the supply of homes for rent, if anything they reduce them. Rent controls ensure that some people enjoy a lower rent whilst many others find nothing to rent at any price, and are driven further out. Rent controls have never worked, anywhere.

The Socialists caretaker Government in Madrid has already been forced to tack left on housing by Podemos, and introduce legislation in favour of tenants and at the expense of landlords. The way things are going I expect more intervention and rent controls at all levels of Government where the left win power. None of it will solve the problem of housing affordability in hot markets like Barcelona, if anything it might make it worse. So I expect to hear lots more talk about speculators and vulture funds as left wing politicians like Ada Colau look for someone to blame for their failed policies.

SPI Member Comments

Thoughts on “Housing affordability a hot topic in next Sunday’s municipal elections as “speculators” and “vulture funds” are blamed for rising housing costs

  • SurveySpain says:

    It is caused by the profitability of short term rentals as against long term. The AirBnB and the like have enabled investors to market their properties directly to short term tourist rentals. They may pay more for a weekend than a long term renter will pay for a whole month. Increased regulation of the long term market will also be forcing former long term renters to look at the short term, thus forcing long term rents even higher in a reduced supply..

    However, this, in theory, should also cause a swamping of the short term market, thus reducing rents. Also, I suspect that when the taxman gets hold of the rental income, and the short term investors discover the hassle and demands of the multi-listing websites, they will find the net income does not make it worthwhile. That should lead to many investors deciding to sell their property, more being on the market for long term or for sale, and perhaps reducing rents and prices.

    • Mark Stücklin says:

      I agree that short term rentals facilitated by Airbnb and co. are one of the reasons why rents are rising in some markets, but no the only one, or even the main reason. In Barcelona, for example, rents are rising because demand is rising and the supply is fixed. Demand is rising as more and more people want to live in the city, people from both Spain and abroad, added to which there is hotel and holiday accommodation competing for the same fixed stock of property in the city. I think it’s an irreversible trend. The best thing for local authorities to do would be to increase the supply as far as possible, and increase the tax on second homes.

  • I completely agree Mark, Airbnb’s fault is minor and the major culprit is low supply… this was again shown in Toronto a couple of years ago when they restricted Airbnb rentals thinking that rental prices are going to come down. Guess what, not only did they not go down but they increased at an even higher rate!

    Of course that coincided with introducing rent controls and putting additional restrictions on long term rentals which as you correctly pointed out have not worked anywhere in the world. I was really surprised to see the left-leaning El Pais put this article on its front page today – as they say enjoy the voted: 😉


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