

A recent report from BBVA Research analyses Spain’s growing housing shortage.
The presentation-format 80-page report can be downloaded (in Spanish) from BBVA Research here but a précis article is also available here, with an executive summary in English.
The précis, written by Rafael Domenéch, head of economic analysis at BBVA Research (part of BBVA bank), and also published in the Spanish daily El Mundo, sets up the problem as follows:
“The housing shortage in Spain is a complex problem that is receiving increasing attention and justified social, economic, and political concern. Large segments of the population experience difficulties in accessing rental or owned residential housing, especially in large cities and high-demand areas. This situation is becoming a bottleneck for job creation, including immigrant employment, which is necessary to address the ageing of the Spanish population.”
The root cause of the problem is the gap between housing supply and demand driven by immigration and tourism on the demand side, and challenging regulations and economic realities on the supply side.
Thanks to immigration, new household formation is growing faster than new home building. In 2018 & 2019, new household formation and planning applications (visados) for new homes were roughly equal at around 100,000 per annum. In 2023 new household formation increased to 300,000, whilst planning applications remained around 100,000, implying a shortfall of 200,000 new homes per year, whilst at the same time increased tourist numbers have boosted demand for tourist accommodation competing with residential demand, exacerbating the imbalance and driving up the price of accommodation.
Housing starts per capita are unchanged from a decade ago (near the lows that followed Spain’s real estate crash), and between half and two thirds below other European countries, which also helps explain why the average age of emancipation / flying the next in Spain is almost 31 years old, four years more than the EU average.
What’s causing the Spanish housing shortage?
So, what are the specific drivers of this growing problem? The précis summarises them as follows:
- First, the shortage of ready-to-develop land. Although cities have land available for housing development, the proportion of land ready for construction is limited, and the processes are excessively long and complex. From the initiation of a General Urban Development Plan to the granting of an occupancy licence, including the drafting of the Urbanization Project, obtaining licences, and construction, decades can pass. Many urban planning schemes are older than 1992, and only 30% are post-2008.
- Second, regulatory uncertainty. Housing legislation has recently undergone significant changes, altering the development plans of promoters and the rental supply. Some measures have discouraged investment, introducing legal insecurity and regulatory uncertainty for builders or property owners, reducing profitability and housing supply. In 2022, construction was one of the sectors with the lowest profitability, according to the Central Balance Sheet Data Office of the Bank of Spain. In the case of rentals, the market is highly fragmented, and the Housing Rights Law disincentivizes the professionalisation of the supply, which could bring greater efficiency to the market.
- Third, a reduced public budget for housing policies. The construction of subsidised housing has drastically decreased, from 70,000 annually in 1995-2010 to 13,000 per year since 2021.
- Fourth, the rise of tourist housing. The increase in foreign tourism, as well as legal insecurity and regulatory restrictions on regular housing rentals, have driven the growth of tourist rentals. According to the INE, in February 2024, there were 351,400 tourist homes, 19.2% more than two years earlier.
- Fifth, price pressures on raw materials and the energy crisis have led to residential construction costs closing 2023 34% above those at the end of 2019, affecting the profitability of many investment projects.
- Sixth, the labour shortage. Construction is the sector with the most intense ageing of its workforce and the highest growth in unfilled vacancies. Between 2016 and 2023, the number of vacancies quadrupled, while in the entire Spanish economy, it doubled. The sector’s workforce training is relatively low, worsening the situation.
- Seventh, productivity in construction remains near the lows of 2007 and is well below the total economy’s productivity (25.4% lower) and that of the sector in the Eurozone (15.2% lower).
- Eighth, the low appetite for financing construction projects. In addition to lower profitability, the prudential treatment of financial institutions’ exposures to housing and land penalises financing with higher capital consumption compared to other activities. While this direction is appropriate for reducing financial instability risks, the requirement for mortgage securities to have guarantees not exceeding 80% of appraisal value makes it difficult for households without necessary savings for a down payment or other guarantees to purchase homes.
What is to be done?
“The solution to the previous problems is slow and complex. Meanwhile, the housing shortage will increase in the short term,” cautions the article by Domenéch, which then goes on to make the following recommendations:.
- It is crucial to reduce the times and simplify the procedures for project approval, with fast-track procedures. Establishing a stable and predictable regulatory framework that provides more certainty and shortens urbanization and construction processes is essential to encourage investment in housing and the rental supply.
- Housing policy must balance the rights of homeowners with the protection of vulnerable tenants through public aid, reducing the risk of renting and increasing the supply of permanent housing. This can be achieved through regulations, taxation (e.g., potential VAT payment), and control of tourist rentals, considering the different effects on their surroundings. These measures would help professionalize the rental market with companies offering more homes for long-term rentals and coliving.
- Public investment in the construction of social housing and the rehabilitation and renewal of the existing residential stock must be significantly increased. Public-private collaboration would make better use of available resources. Investing in worker training programs, industrialization, and the adoption of advanced technologies would increase the availability of skilled labor and productivity, reducing construction costs and times.
- Reducing regulatory uncertainty and legal insecurity and speeding up times would increase investment profitability and thus the availability of financing. Public guarantees, loans from the Recovery, Transformation and Resilience Plan, and incentives for construction aimed at rent-to-own would facilitate the accumulation of rental payments in the first years to serve as a down payment for a future mortgage loan.
- Addressing the housing supply problem in Spain requires learning from successful international cases, with comprehensive and consistent long-term policies that reduce uncertainty, increase profitability and efficiency in the sector, and encourage real estate investment and rentals.