The average price of housing in Spain has continued its upward trend in 2022 to close the year with an increase of 3.3%, standing at 1,507 euros per square meter on average in Spain. But this trend's days are numbered, as the rise in interest rates by the European Central Bank (ECB) and its consequences on the Euribor will slow down purchases during the just-launched year 2023, according to experts. Nor will the situation of economic uncertainty help, which will create a perfect cocktail for a drop in housing prices for the first time since the pandemic, although it will not be a significant fall due to the lack of supply in the most inhabited cities.
It should be borne in mind that there are two Spains in the home buying and selling market. On the one hand, cities where prices are maintained or even fall year after year because many of their inhabitants go to live abroad for work or studies, as is the case of Extremadura (prices fell by 1.4% in 2023) or Castilla-La Mancha, where they do not exceed 1,000 euros per square meter. In contrast to others that receive residents every year, which strains the market due to the lack of supply, such as the Balearic Islands, which for the fifth year marks the peak with 2,611 euros/m2, followed by Madrid (2,412 euros) and the Basque Country (2,309 euros).
Approximately 80,000 homes are built each year in Spain, when demand is three times higher. In the years of the real estate bubble, 700,000 homes were built. Luis Corral, CEO of Foro Consultores Inmobiliarios, explains to this newspaper that the supply is very low, both new and second-hand. In his opinion, the construction costs of new housing have risen and developers are not able to make ends meet, which, together with the fact that it takes "up to 15 years" to convert rural land into developable land due to administrative obstacles, makes the situation very difficult.
Forced to live in rented housing
As a result, second-hand homes have received "enormous demand pressure" and have been running out. Corral assures that the rise in rates will slow down purchases, "but that does not mean that prices will go down because there is very little to look for". This situation forces many young people and working class families to live in rented accommodation "in a forced way". "There are many who would like to buy a home but the market prevents them from doing so, so they opt for renting and that puts upward pressure on prices," he explains.
Fotocasa's forecast for this year is that rental prices will rise by 5% in Spain and warns that "interventionism" in this market will push up prices, contrary to what is intended to be achieved. In 2022 they shot up by 8.4%, according to data from Idealista, which puts the price per square meter for rent at 11.4 euros.
The professor of Economics at the University of Barcelona, Gonzalo Bernardos, says that the supply of rental apartments is very low because the price cap "has been loaded". He explains that many landlords are switching to seasonal rentals of rooms for students, which makes them more profitable. In his opinion, the 2% limit is "great news" for the current tenant in the short term, but "horrendous" for those who have to move house. "Price controls have been implemented in many European cities and have always failed," Bernardos said.
In his opinion, the formula for lowering rental prices is a combination of tax benefits for owners (public administrations paying property taxes, IBI, community property taxes, etc., as long as the owner keeps the property at a modest price) and providing incentives to large owners so that social renting yields them at least 5%. "There would be a lot of empty homes on the rental market and as soon as the supply goes up, the price goes down," explains the expert.
Renovations increase the value of housing
A form of investment in housing that has become popular in recent years is to refurbish second-hand properties and sell them well above their original price. A study by Casavo reveals that the renovation of a property in Madrid can increase its price by up to 30%. However, Mariano Sanz, general secretary of the construction employers (CNC), explains to this newspaper that the reform and rehabilitation of housing is an activity in which prices will fall little this year because the materials continue to mark maximums.
In addition, Sanz recalls that this subsector is "central" within the Recovery Plan, with 3,420 million of European funds earmarked for residential rehabilitation, but this budget "does not end up reaching the real economy because they are not being transferred from the communities to the companies". All this will affect prices, the number of projects and the rate of job creation in the sector, he warns.
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