As house prices plunge across much of Europe, Spain’s property market is experiencing a mini-boom.
Property prices grew by a respectable 4.3pc in the final quarter of 2023, according to statistics body Eurostat. The number of Spanish property sales hit 586,913 last year – 24pc above the 10-year average and the second highest in more than 15 years.
By contrast, residential property prices in the EU fell by 0.3pc in 2023 and 1.1pc in the eurozone.
Northern Europe has been particularly hard-hit. In Germany and Luxembourg, house prices collapsed by 8.4pc and 9.1pc respectively. Prices in Denmark fell by 5.6pc, while Britain saw a modest 1.4pc dip.
Spain’s bullish housing market has defied high inflation, rising interest rates and cost of living pressures that have also plagued neighbouring countries.
Mark Stücklin, head of data company Spanish Property Insight, said the market is experiencing a “mini-boom”, despite an apparently hostile economic environment.
He added: “Demand has been very strong. You look around at Germany or Sweden and it’s not the same story.”
An influx of expat residents, booming tourism and a strengthening economy have been key to reviving Spain’s housing fortunes.
But the darker side of the success story is acute regional disparities and strangled property supply, leaving locals unable to find affordable housing.
Bust to boom
Spain’s buoyant housing market is all the more impressive given the disaster it experienced in the wake of the 2008 financial crisis.
A lengthy property bubble burst and prices plummeted by 37pc, reaching a low point in 2013.
In 2014, census data showed that 3.4 million houses sat empty across Spain, along with nearly half a million properties that were abandoned part way through construction.
Nominal prices have only just eclipsed 2008 levels and are still 25pc lower after adjusting for inflation.
It was Covid that provided an unexpected shot in the arm.
“The pandemic was a tonic for the Spanish housing market,” Mr Stücklin said. “Foreign demand was bolstered, and local demand too.
“People’s outlook and priorities changed. Buyers said to themselves ‘let’s get on with our plan and move’.”
What could have been a short-lived boost has persisted, however, as foreigners have flocked to Spain’s tourist hotspots.
Spain’s population is growing, but the growth is being fuelled almost entirely by immigration. Net immigration hit 727,005 in 2022, the highest level for a decade.
Among the influx of immigrants are wealthy pensioners from Northern Europe looking to retire in the sun. Their ranks have been swelled by a demographic bulge which has seen large numbers of baby boomers – those born between 1946 and 1964 – reaching retirement age.
A cresting wave of retirees means a bigger pool of potential buyers, helping to buttress housing demand, according to Elisabet Viladecans-Marsal, professor of economics at the University of Barcelona.
She said: “The Spanish economy is doing well, unemployment is going down, tourism is booming. We’re in good shape compared to other places in Europe.
“Post-Covid, investment from foreigners is growing more than ever – more people want to work here remotely. Barcelona is now competing with New York as a place as somewhere people want to move to, but it’s still half the price of Paris.”
At the same time, Spanish mortgage-holders have avoided the pain of their British counterparts.
The number of homes repossessed from borrowers hit an all-time low in the third quarter of 2023, according to data from Spain’s National Institute of Statistics.
Unlike in Britain, mortgage rates in Spain are lower than they were in the aftermath of the financial crisis, when they averaged around 5pc. Rates dipped to around 2.5pc in 2018, where they remained until 2022. They have since seen a modest rise to between 3pc and 3.5pc – still significantly below the long-term average.
In Spain, it’s common for a fixed-rate mortgage to have a term of between 10 and 30 years, compared to two or five year terms in Britain. It means fewer homeowners being forced to remortgage at potentially higher rates. This has helped to limit forced sales and keep the market buoyant.
Professor Viladecans-Marsal said: “Mortgage repayments are going up for some people, but it’s at a manageable level.
“Real wages are growing and inflation is under control, so the rises are affordable. People are doing well, and most have a healthy financial situation.”
Thin supply
At the same time as demand for housing has surged, supply has dwindled. Spain recorded a shortage of 325,000 homes last year, as newly built households outstripped newbuilds.
Historically, Spain has seen around 100,000 new homes built annually. However, last year only 80,000 new homes were built, and forecasts suggest a further drop to 60,000 units in 2024.
The trend places Spain among the European countries with the lowest rate of home construction per 1,000 inhabitants.
“There’s a real lack of good quality housing,” Mr Stücklin said. “The building pipeline is thin and Spain isn’t building as much as it should, given its demographics.”
Developers blame red tape – particularly the difficulty of acquiring permits from local authorities – as well as rising construction costs.
Spain’s property crash has also cast a long shadow, and continues to dent investor confidence.
“It’s tricky to get financing for projects – developers have to put up a lot of capital,” Mr Stücklin said. “Banks don’t want to lend to developers, you have to have very good numbers.”
Tight supply and booming demand have contributed to a domestic housing crisis that Spain’s socialist government has been trying to address.
In tourist hotspots such as the Balearic Islands – which include Mallorca – locals say they are being priced out of living in their own home towns.
In April, Prime Minister Pedro Sanchez announced that the “golden visa” scheme that grants residency to foreign property buyers – including Britons – would be axed.
He said the move would make access to affordable housing for Spaniards “a right instead of a speculative business”.
The number of expats using the scheme is a tiny fraction of the overall numbers buying up property on the Spanish coastline and the big cities.
In reality, the move was a political gesture reflecting the anger of Spaniards who cannot afford to buy – or even rent – in a booming market.
Empty Spain
House price growth at a national level masks a more complicated regional picture.
The irony is that Spain was left with a glut of houses after the financial crisis, and is now in desperate need of more. The problem, according to Mr Stücklin, is that many of the properties were built in the wrong place.
In what Spaniards call la España vacía (empty Spain) – the agriculture-reliant regions in the country’s vast interior, including Castile and León, Castile-La Mancha, Extremadura and Aragón – many houses still lie empty.
As Spain’s metropolitan centres and tourist hotspots have flourished, these areas have been left behind, and their inhabitants, especially the young, have migrated to the cities.
Just 10pc of Spain’s population inhabits 70pc of the country, and 40pc of towns are at risk of depopulation, according to a University of Barcelona study.
Mr Stücklin said: “Throw a dart in a map of Spain and there’s a good chance you’ll hit somewhere where villages are being abandoned.”
House price growth has been considerably weaker compared to the parts of Spain popular with foreigners.
“If you want to buy in Madrid, the Balearic Islands, Barcelona, Marbella, parts of the Costa Brava, the sellers have the whip hand.
“There’s loads of local and international demand in these regions, but also vast swathes [of Spain] where you’d struggle to find a buyer.”
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