The latest OECD report on Spain puts a spotlight on the country’s housing access problem, especially for the young.

“A difficult transition from education to the labour market, coupled with a lack of affordable housing, often means a difficult transition to independent life for young Spaniards,” begins the housing section of the latest Economic Survey Spain report by the OECD, which produces research for a group of predominantly rich countries including Spain.

The report shows how Spain has one of the worst records in the club when it comes to flying the nest. The average age of young people leaving the parental household is the third highest in Europe, as illustrated by the chart above.

As a result, the share of young adults living with their parents is also one of the highest in Europe at more than 60pc in the case of 18 to 34 year olds, and almost 50pc for 25 to 34 year olds. Access to affordable housing in big cities and other areas like the Balearics is a problem for all age groups, but especially for the young.

Renting is not an option for many young Spaniards because they can’t afford private rental housing, whilst social housing is almost non-existent. The report provides the following facts:

• 75pc of households are owner-occupiers, and 14pc rent, close to OECD averages
• Social rental housing is just 3pc of households, less than half the OECD average
• Only 1pc of the housing stock is social, compared to 7pc in the OECD (see chart below)
• Most young Spaniards rent, but renting is expensive, particularly in large cities like Barcelona and Madrid, and regions like the Balearics.
• Average rental prices have risen around 40pc in the last decade, but nominal wage growth for your people has been under 10pc for the same period
• The cost of renting for young people with average incomes is well above the OECD threshold income for housing overburden of 40pc of monthly rent, even for dwelling with the minimum legal size
• Close to 35pc of young adults who have flown the nest live in shared accommodation (50pc in Madrid)
• As in many countries, buying a home is out of reach for most young adults: the down payment for an average new home is almost four times the average annual wage
• The rate of home ownership for your adults is significantly lower than for older people, at just 32pc

Why does Spain have such an imbalance between tenure and tenancy? The OECD doesn’t say, but it might have something to do with the fact that Spanish dictator Francisco Franco crushed the rental market with rent controls whilst encouraging home ownership with a drive to build affordable housing. Subsequent democratic governments made life easier for landlords, but did next to nothing to boost the stock of social housing. 

What should the government do?

What to do about the problem of access to affordable housing in Spain? The OECD writes that “ensuring that there is enough housing supply to meet demand is key to housing affordability,” and then points out that the number of social housing units has fallen steadily each year since 2013 “so that by 2018 new units amounted to less than 10pc of those added at the 2009 peak.” Spain also has a glut of empty new homes (1.8pc of the total housing stock in 2019) “concentrated along the Mediterranean coast, and in Madrid and Toledo.”

If the OECD is suggesting that young people could move into those empty homes if they were more affordable, they misunderstand the problem. Most of those homes were built far away from where people need to live and work. That’s why they were never sold.

Having noted that boosting the supply of affordable housing, especially social rental housing, is the “key to housing affordability” the OECD report then mentions some recent government initiatives to do this, but says it is unclear what the results have been, and says “more clarity would be welcome on the expected timeline of availability of these units, given that in some cases, due to the nature of the programmes, they might take years to build.” The reason the government can’t provide more clarity is because its policies don’t stand up to scrutiny.

Nevertheless, some concrete measures are being taken. “Given the fiscal costs of these measures, to ensure their efficiency and effectiveness it is crucial that their design and implementation include clear governance rules and criteria to access housing, like regular means-testing to access rental housing and regular tracking of changes in eligibility,” writes the OECD. That’s a nice idea but government policy is partly based on making evictions almost impossible, thus pushing the cost of social housing onto private landlords. It’s optimistic to expect a Spanish administration that is on the side of squatters to be “efficient and effective” when it comes to managing social rental housing. 

Housing Law

Turning to the recent Housing Law, the report says “the government has approved a Law on the Right to Housing which seeks to address the lack of affordable housing in Spain through a series of regulations and tax measures aimed at increasing the supply of dwellings and limit price increases.”

The OECD suggests that the law’s plan to force developers to “allocated 40pc of new residential construction to social housing, half of it for social rental units,” could generate benefits for lower-income households, but only if carefully monitored to “ensure that such inclusionary zoning does not reduce incentives to start new projects or drive up market prices.” But this policy has already been tried in Barcelona, where the city was a guinea pig for the new Housing Law under former hard-left Mayoress Ada Colau. Her social housing quota has led to a total collapse in new home building, including social housing units, resulting in higher housing costs for everyone.

Rent controls

Moving onto the question of rent controls, the OECD notes that the new Housing Law “also includes mechanisms to stabilise or temporarily cap rents in stressed [strained] housing markets, even though Spain already has more restrictive rent controls than average, and would benefit from easing them.”

The OECD summarises the arguments against rent controls.

“First, rent controls can reduce long-term availability of rental housing. Controls generally benefit incumbent tenants, but reduce returns to investment in new housing for developers, encouraging landlords to leave the market and discouraging potential landlords. Stringent rent controls have been found to have detrimental effects on housing supply and lower the house price elasticity of residential construction. In San Francisco, rent regulation has reduced supply by 15pc, while in Berlin it appears to have had smaller negative short-run effects.

Furthermore, there is some evidence that rent controls can also increase the market price of the rest of the housing stock, reducing affordability for non-incumbents, many of whom would be young people. There is evidence that the introduction of caps on rents led to an increase of 5.1pc in market rents in San Francisco, and to an increase of 4pc in rents in Berlin. Besides reducing supply and increasing prices, rent controls can also have other undesirable effects. They can be regressive because they are not means tested and could benefit more affluent households and owners of unregulated housing whose rents increased after the controls. There is also evidence that rent controls introduced by the city of San Francisco caused a 20pc decline in mobility.”

The OECD is delicately pointing out that rent controls only benefit sitting tenants whilst reducing housing investment and labour mobility, which is hardly a new revelation. Even the Brookings Institution, a left-leaning think-tank based in Washington DC that has studied rent controls concluded that “while rent control appears to help current tenants in the short run, in the long run it decreases affordability, fuels gentrification, and creates negative spillovers on the surrounding neighbourhood.”

There is no “solution” to the housing problem, only trade-offs. Government policy can exacerbate or mitigate the problem. The OECD report uses diplomatic language to call for more “clarity” and point out the risk of unintended consequences resulting from social housing quotas and rent controls. We can only hope that the Spanish government is listening.