Spain needs to build half a million new homes to provide housing for a growing population and demographic changes that are driving household formation, argues the Bank of Spain in two new reports.
Key takeaways:
- Significant housing deficit: Spain needs 500,000 new homes by 2025 to address the current shortage, concentrated in Madrid, Barcelona, Valencia, Alicante, and Malaga. This figure is a revised estimate, down from 600,000 projected earlier this year, attributed to the uncertainty of migration flows and demographic projections.
- Strain on renters: More than half of renters in Spanish cities spend over 40% of their income on housing, leading to a high risk of poverty and social exclusion, particularly affecting low-income households.
- Challenges for young people: High rental costs contribute to a growing number of young people (66% of those aged 18-34) living with their parents, a trend significantly higher than in other major European economies.
- Call for public intervention: The Bank of Spain concludes that public intervention is justified to alleviate the strain on renters and recommends increasing the supply of affordable rental housing, encouraging private landlords to enter the market, and prioritizing support for vulnerable households.
- Robust market despite challenges: Despite these challenges, the Spanish housing market shows signs of strength. Purchase activity has increased, fueled by population growth and demand from non-resident buyers, with foreign buyers accounting for 20% of purchases in 2023.
Supporting evidence:
- Housing deficit: “Spain would need half a million additional homes in 2025 to try to balance the housing stock that has suffered a high deficit in recent years, and thus cope with the creation of households.”
- Rental strain: “More than half of the people who live in rented accommodation in cities allocate more than 40% of their income to housing.”
- Risk of poverty: “Between 2015 and 2023, around 45% of the population that has resided in Spain in market-priced rental housing has been at risk of poverty or social exclusion.”
- Impact on young people: “Specifically, the percentage of people between 18 and 34 years of age who reside with their parents reached 66% in 2022, two out of three, thirteen points more than in 2008.”
- Justification for public intervention: “Public intervention” in housing is justified if the objective is to solve the “high effort associated with renting housing” that “can lead to adverse economic and social effects” on the population.
- Market strength: “The average annual number of home sales in the period 2021-2023 exceeded 675,000 units, with average volumes reaching 50,000 monthly operations.”
Further considerations:
- While the Bank of Spain does not explicitly mention the Housing Law within its recommendations for public intervention, it aligns with the law’s goals of increasing affordable housing and supporting vulnerable renters.
- The reports highlight the significant role of foreign buyers in the Spanish housing market, particularly in coastal areas, raising questions about the potential impact on affordability for local residents.
- The Bank of Spain’s data indicates a substantial increase in private landlords over the past decade, challenging the narrative that large corporate landlords dominate the rental market.
Conclusion:
The Bank of Spain’s reports paint a complex picture of the Spanish housing market, acknowledging its current strength while highlighting critical challenges, especially for renters and young people. The reports’ emphasis on public intervention underscores the need for policy solutions to address the housing deficit and ensure access to affordable housing for all residents.
