Spain Faces Housing Crisis Due To Scarce Housing Supply

As Spain faces a growing housing affordability crisis, the government has proposed new measures aimed at foreign buyers. However, experts suggest these may not effectively address the shortage or reduce housing costs.

Spain's housing market is under intense pressure in certain locations. While the economy is growing and unemployment is falling, demand for housing is increasing, especially in cities like Madrid and Barcelona. However, potential buyers and renters face a severe shortage of available homes, and those available are often priced out of reach for average salaries. In popular coastal areas, short-term rentals and second homes also push prices and displace locals from the market.

However, the root cause of the housing affordability crisis is not foreign buyers but a shortage of available homes. The key to resolving this issue lies in boosting construction, which has been sluggish since the real estate bubble burst 2008.

Spain's housing boom began in the 1960s, with the most significant growth occurring in the 2000s. Around 95 per cent of the country's housing stock was built before 2009, and about 22 per cent of these homes were constructed between 2000 and 2009.

However, since the 2008 financial crisis, new construction has slowed considerably due to limited land in prime areas, bureaucratic delays, a lack of skilled labour, and restricted access to financing for small and medium-sized developers. Only 5 per cent of Spain's housing stock has been built in the last 15 years.

A report by the Bank of Spain estimates that the country will face a housing deficit of around 600,000 units by the end of this year.

The housing affordability crisis has also sparked protests over overtourism. Locals in cities and tourist-heavy areas feel pushed out by tourists, with neighbourhoods overtaken by short-term rentals. However, Spain's economy relies heavily on tourism and foreign investment, and Spaniards or other Europeans also own many second homes. Non-EU buyers represent a small portion of the overall market, and while they may impact certain areas like Barcelona and Madrid, their influence on national housing affordability is limited.

The focus on taxing foreign buyers may serve as a political strategy to create uncertainty in the market, discouraging foreign investment without addressing the underlying issue of housing supply.