Building land prices fell 15% in the second quarter of the year, a period defined by Covid-19, new figures from the government show.

The average price of building land in Spain, known as suelo urbano, fell by 15% to 139.6€/m2, the lowest level since the Housing Department, part of the Ministry of Transport, Mobility, and Urban Agenda, started collecting this data back in 2004.

Having reached a peak of around 285€/m2 in the boom year of 2007, land prices fell to a low of 142€/m2 in the depths of the crash, before starting to recover in 2014, peaking at 164€/m2 in the first quarter of this year, then falling to 139€ in the second quarter.

Covid-19 is the obvious explanation as to why building land prices plunged 15% in Q2, when Spain was in lockdown. Lower building land prices reflect lower levels of confidence in the future housing market.

Building land prices in municipalities with 50,000 or more residents, including the big cities like Madrid, Valencia, Malaga, and Barcelona, were more resilient to C19, and only fell by 4% on average, compared to the same time last year. However, the average masks significant differences between cities, with double-digit falls in Barcelona, Las Palmas, and Seville, and single digit declines in Madrid.

Building land is the key raw material of new homes, and can represent between 30% and 70% of costs, depending on the location and economic cycle. If land costs are falling, that suggests developers might have room to reduce prices when cheaper building land costs flow through.

But Covid-19 isn’t the only factor putting downward pressure on building land costs. There are also the increasing costs of red tape to contend with, and, in Catalonia, a draconian new rent-control law that makes it unviable to build to rent unless land prices drop enough for the numbers to work.