A study by the Bank of Spain recommends that the Government “review the procedures for managing developable land” to try to lower the price of housing in Spain, whose high cost is attributed to the “mismatch between supply and demand.” The study, “The mismatch between housing supply and demand and its relationship with prices“, (“The mismatch between supply and demand for housing and its relationship with prices“) by Lucio San Juan, an analyst at the issuing bank, and published in his latest Economic Bulletin, points out that the Spanish real estate market is characterized by a shortage of supply and strong demand, and that both factors have worsened after the pandemic. which will neutralize any price reduction that may result from the rise in interest rates.
The study attributes the resistance to the fall in prices, on the demand side, to the profile of the buyer, which it defines as “high-income, middle-aged households (between 30 and 49 years old) and higher educational levels” who they accumulated savings during the pandemic. This effect will be aggravated in the coming years by an increase in the number of households due to the increase in immigration.
On the supply side, on the other hand, the study stresses that prices are being pushed up by the limited availability of housing, also rigid in the short term, and by the increase in the cost of materials and labor.
According to the issuing bank, during the pandemic the mismatch between supply and demand improved, which was temporarily reflected in lower prices, due to the fact that the supply of homes increased due to an increase in the number of homes sold from inheritances (which reached a high – all-time high in 2021), while demand fell as travel restrictions reduced purchases by foreigners.
After the Covid, however, demand has increased and purchases by foreigners skyrocketed (they were 40% higher in 2022 than in 2019), because purchases for second homes have been added to those who have settled in Spain to telework, while national buyers are looking for different types of homes. Homes (larger and with outdoor spaces) have increased.
At the same time, there has been a reduction in supply due to a drop in housing construction -which was already low before the pandemic- because during the confinement the works were temporarily paralyzed and the processing of visas was delayed. Thus, the study points out, housing completions fell by 5% in 2022, to 80,000 units, well below the construction that had occurred during the previous 30 years, when the average was more than 240,000 homes per year. In addition, the study points out, the offer is also falling because since 2021 there has been an increase in the number of owners who have decided to allocate their homes to tourism.
The study by the Bank of Spain highlights that there is a stock of around 450,000 unsold new homes, dating from the years of the real estate bubble, and that since 2018 it has practically not been reduced, which it attributes to the fact that it is no longer adequate. to the preferences of current buyers, due to its location, or because it does not meet the requirements of larger size, open spaces and energy efficiency that are demanded today.