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Investors not welcome

Investors not welcome

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:

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.

SPI Member Comments

4 thoughts on “Investors not welcome

  • Rosalind Beck says:

    I’ve been networking with owners whose homes have been squatted and they are absolutely desperate. As you say, they are being made to fund others’ lifestyles, in some cases paying 300 euros a month on electricity and the same on water as the squatters put in 10 heaters they run 24 hours a day and leave the taps running as a kind of punishment against the owner but also to make them desperate enough to pay a large sum to be rid of them. How it can be allowed for these people to kick in doors and then have possession rights in effect, even using or destroying the owners’ personal possessions is an absolute affront to all notions of justice.

    • Mark Stücklin says:

      Yes, I’ve seen a letter from one of the victims that you published. It’s an absolute disgrace. The people getting hurt are small investors, not rich people or funds.

      • ❝• High taxes and transaction costs on property purchases.
        • Extraordinarily high planning and bureaucratic costs on housing development❞

        Bias is poisoning the article.

        Instead of using relative words like “high” & “extraordinarily high”, it would be a lot more useful to use exact percentages, or at least give comparisons.
        For example, taxes and & transaction costs on property purchases are high… compared to what?

  • No surprise this and a well written article, telling it like it is.
    Even the UK Conservative Government are making life extremely difficult for landlords.
    I can only imagine what it would be like if we had had a left-wing government in power.
    As a property investor, you are looked upon as the ‘devil incarnate’ to these anti-capitalist authoritarians.

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