
18 Sep Is Spain facing a new real estate bubble?
Recently, several news have warned of a possible new real estate bubble in Spain. While it is true that prices, both purchase and rental, have been rising over the past two years, experts in the sector are convinced that Spain is not facing a new real estate bubble. The causes of the rise in the price of housing have a different origin from those that caused the last real estate bubble. This article tries to give a first insight to the price of housing in some areas is rising, highlighting that the situation is not homogeneous throughout Spain, and the specific mechanisms that are being adopted by the Barcelona City Council in this regard.
The price of housing in Spain has increased in the recent months, despite the fact that in large cities this same circumstance has been going on over the last two years, the concern on a possible new housing bubble has risen.
However, a big part of the sector consider that we are not facing a new bubble, at least not as the one that occurred a few years ago. Experts argue that the causes of the previous real estate bubble (such as excessive financing, price speculation, excessive inflation, etc.), are not occurring today.
Furthermore, it is worth mentioning that the current market is widely differing and that the biggest increase in prices is taking place in large cities, while other locations’ prices are maintained or even reduced.
Yet, given that in cities such as Madrid or Barcelona the price of housing is already beginning to rise above the GDP, wages and interest rates, some experts warn on the “overheating” or overvaluation.
According to experts, the cause of this situation is not the financial market, which remains cautious, but the main reason lies on the increase in rental prices. This is due to the increase in demand over supply.
On the one hand, the majority of society cannot afford to buy a house because of its economic situation, so people need to rent a house instead. On the other hand, with the increase of tourism, a large part of the houses is being allocated to tourist rentals – more profitable than conventional rentals –, restricting the market even more. In this context, if you want to know more about the regulation of tourist housing in Barcelona, click here [hyperlink to the other article on planning permission].
Increase in rental prices in Spain
According to the annual report of maximum and minimum rents of housing in the main Spanish cities prepared by Tecnitasa, there has been an average increase throughout Spain of about 5% over last year.
Although it is not possible to speak of a new real estate bubble, in some cities there has been a very significant increase in the price of rent, as for example in Palma de Mallorca, where there has been an increase of up to 35%.
Barcelona is at the pinnacle of rental prices in Spain with an average of €35.5/m2, followed very closely by Madrid with €32.2/m2. One of the reasons for the drastic rise in rent in the big cities is the increase in the working places. After the crisis, companies have been expanding their workforce, and that has led to an increase in rental demand.
In the Community of Valencia we can find the cheapest rents. For example, in the city of Elche we can find rents for 1.9 €/m2. Even though in the Community of Valencia is where we find the cheapest rents, there are areas in which the price has increased up to 10% over the previous year.
There are even cities in which the price of housing has fallen, for instance Pamplona – the city at the top of this list – having recorded a drop of up to 35.94%.
Barcelona’s measures before the rising prices of housing
In order to avoid a possible future housing bubble, Barcelona City Council is carrying out certain measures in the housing sector. For example, Barcelona is fighting against illegal tourist apartments or encouraging social renting.
In this sense, Barcelona City Council and New York City Council have proposed to join forces to fight a common problem: the access to housing due to the rising of prices.
Both cities have submitted together to the program organized by the European Union called “International Urban Cooperation”, which grants funding to promote relations amongst cities that search joint solutions to various problems related to housing.
In the past, the two city councils have already had several meetings in which they have exchanged ideas on their specific problems. For example, Barcelona is studying the feasibility of implementing the system of regulation of private rents applied in New York. This program establishes public control over the price of rents in order to facilitate access to housing for people with medium and low incomes.
Conclusion
It is noticeable that house prices have risen significantly again in the recent months, especially in relation to renting. However, experts argue that this simple fact does not automatically lead to a real estate bubble. This is because in order to lead to a real estate bubble, many other aspects should be taken into account. Furthermore, the big cities are beginning to establish certain measures to influence the real estate market in order to avoid a new real estate bubble or other similar consequences.