The Spanish government, and some regional authorities, are discouraging investment in housing, which will only reduce the supply of decent affordable housing in the long term.

Housing is a capital intensive business. You need a lot of money to build and maintain housing, especially when the planning and bureaucracy cost of housing is so high, as it is in Spain (the government could reduce that cost, but that’s another story). Either the government pays through higher taxes and borrowing, which is a perfectly valid political choice, or you have to attract private investment. Ideally you aim for a blend of the two for optimum results, but it’s a complicated matter, and not easy to strike the right balance.

What you definitely don’t want is to discourage private investment, leaving the public purse to do all the lifting. That way you get a long-term under-investment in the housing stock, and a big drain on public finances. But discouraging private investment is exactly what is going on in Spain today with policies that punish investors big and small. 

Policies that harm investors include:

• Rent controls in Catalonia, with plans to roll them out nationwide.
• A ban on evictions due to the coronavirus crisis, with talk of plans to extend the ban for months or even years.
• A legal framework that encourage squatters, including mafias taking advantage of the situation to extort money from owners.
• Forcing owners to pay for social housing for squatters and tenants who can’t pay the rent
• Forcing developers in Barcelona to dedicate 30% of new projects to social housing, with talk of raising the quota to 40%, even though it has led to a collapse in new developments above a certain size.
• The end of tax breaks for Real Estate Investment Trusts, known locally as SOCIMIs, which use tax breaks to encourage investment in rental housing.
• High taxes and transaction costs on property purchases.
• Extraordinarily high planning and bureaucratic costs on housing development
• Treating all investors as speculators and vulture funds, regardless of how they do business.
• Constantly changing, hostile regulations that make it difficult to plan the kind of big investments over years or even decades that housing investment requires.

Javier Kindelan, the VP of CBRE Spain, a real estate company with global reach, diplomatically put it this way when presenting the company’s latest report on the Spanish market. “They don’t transmit credibility or confidence to international investors, who worry they will lose liquidity, and see returns restricted. I urge the [national, regional and local] governments to take into consideration the opinion of investors and the real estate sector.”

Beatriz Toribio, a property market expert, and head of the landlord’s association ASVAL puts it this way. “These policies not only fail to address the root of the problem, which is the lack of homes for rent, especially social and affordable housing, they also transfer onto the private sector the government’s responsibility to provide housing for those who don’t have it. With a shortage of social housing, private owners, both individual and professional, are paying the cost of this crisis without any support or help [from the government]. She goes on to say “We have a structural problem with access to housing that we won’t solve with populist measures that generate a lot of noise, but don’t solve anything.”

The Spanish economy is not in good shape, and the coronavirus has made the situation a whole lot worse. So the country needs to attract as much private capital as possible, especially foreign capital, to invest in housing, and ensure a good mix of accommodation from luxury to social so everyone has access to the housing they can afford.

But for years now I’ve noticed that the prevailing attitude in politics and the press towards housing investors is hostile. Landlords and investors big and small are described as speculators and vulture funds however they operate. By treating all investors as speculators, you end up putting off the investors you want to attract, leaving you with speculators prepared to take the risk in search of high returns.

The situation is getting worse now the far left are in power in the national government, as they instinctively see capitalism as evil, and investing in housing for a profit as morally wrong.

The Spanish government, and some regional and local governments, Catalonia in particular, are not explicitly setting out to deter investment in housing, but that is what their policies will achieve. As a result we will see housing access problems getting worse, a bigger black economy, a deterioration housing stock, higher risks, more speculation, and an overall increase in the cost of housing for the country as a whole. 

Unintended consequences perhaps, but all very predictable. 

What every country needs is a political and legal environment that encourages non-speculative investment in affordable housing. Spain doesn’t have that, so the problem will only get worse in areas that need more homes, and the politics of housing will get more toxic.

The second home market on the coast does not really have a problem with affordable housing, but it might also suffer long-term under-investment as investors get the cold shoulder in Spain.