Slow-moving Spanish planning departments ensure that home buyers in Spain have to pay higher prices with bigger mortgages for lower quality new properties, whilst even local authorities and the economy pay a significant price for the delays. Everybody is a loser when town planning officials drag their feet through copious quantities of Spanish red-tape.
Time is money, and the long delay in granting planning permission and habitation licences typical of Spanish urban planning departments ads an extra €13,000 euros on average to the cost of a new home in Spain, according to a new report ‘Planning Licences: The Invisible Tax’ recently presented by the ASPRIMA developers association of Madrid, in collaboration with EY Abogados, the Spanish legal arm of the EY global professional services company.
ASPRIMA and EY Abogados looked at the average time it takes to get planning permission in 10 Spanish municipalities: Five in the Madrid region, plus Barcelona, Malaga, Palma de Mallorca, Valencia, and Zaragoza.
They found that it took town planning departments 12 months on average to grant permits, despite legislation stipulating a maximum of three months for mayor building works, and one month for minor works.
“We are in an unsustainable situation,” comments Juan Antonio Gómez-Pintado, President of Asprima. “We have seen a progressive deterioration in the question of planning permission procedures. In fact, this issue is ever more detrimental to housing accessibility, which is so important.” In other words, planning delays drive up the costs and make housing affordability an even bigger problem for society, especially the least well-off.
Delays and extra costs
The biggest delay they found was in the upmarket district of Madrid called Majadahonda, where planning permission took an average of 16 months. Given the higher house prices in a well-healed municipality, this delay adds an extra €39,000 onto the cost of a new home in Majadahonda, which developers pass onto homebuyers. That represents around 11% of the cost of a new home in the municipality.
The second longest delay was in next door Pozuelo, another upmarket municipality in the Madrid region, where planning permission takes 14 months adding an extra €35,000 (9%) onto the cost of a new home in the municipality. Madrid city came third, with 12 months and €29,000 extra (7%).
Barcelona was fifth in the study, with an average wait of 12 months for planning permission creating an extra cost of €26,145 (6%). Palma de Mallorca was in 7th place with a 12 month wait costing home buyers an extra €18,000 (6%).
In Valencia and Zaragoza the delay was also 12 months, but lower house prices in those cities meant an extra cost of €10,000 in Valencia (4%) and €8,000 in Zaragoza (3%).
Malaga, capital of the Costa del Sol, was quickest to respond with 8 months and €7,000 (3%) in red-tape costs passed onto home buyers.
Home buyers foot the bill, but everyone pays a price
Just like any other cost of production, for example labour or bricks, developers pass on planning costs to home buyers, who foot the final bill. The bigger the planning costs, the higher the prices buyers have to pay, if developers can’t find ways to reduce costs in other areas, for example by lowering the quality of materials. The last thing developers will do is reduce their margins and target investment returns, which they would argue are already too low considering the risks they take.
All of this means that home buyers have to wait longer and fork out more for new homes, also paying more in rent and other opportunity costs along the way. That leaves them with less money to spend on white goods, furniture, interior decor, so they have to borrow more, buy cheaper (great for IKEA) or do without. You can see how the red-tape of Spanish planning departments forces families to borrow more, and take on more risk.
When prices get too high demand can’t keep up. Developers respond by offering cheaper quality. So another consequence of dysfunctional planning departments is lower-quality new homes.
“The problem has an easy solution: change the procedures and not the regulations,” says Gómez-Pintado. “The administration must speed up procedures providing more resources to their own departments, outsourcing the management of some procedures, and digitalising others.”
The planning delays, legal uncertainty, and regulatory patchwork all over Spain increase the risk of developing in Spain, which puts off a lot of investors, and only tends to attract investors with an appetite for higher risks, and higher returns. Guess what you get? Higher new home prices!
The public coffers also suffer as a consequence of the long delays in planning procedures. With an average delay of 12 months in Spain, town halls have to wait for income from planning licences and the council tax new home buyers would be paying a year earlier. The report estimates that Madrid city hall ends up out of pocket to the tune of €10m p.a., Barcelona €4m, and Valencia €1.5m.