By Mark Stuecklin
SPAIN has a housing crisis, make no mistake, and policies intended to solve it are actually making matters worse.
That is broadly the conclusion of a new report from Funcas, one of Spain’s leading economic think tanks, and it’s hard to disagree.
The basic problem is a mismatch between supply and demand. Spain has not built enough homes for more than a decade whilst the population and number of households have continued to grow.
The result is an accumulated housing shortage that Funcas estimates at around 750,000 homes.
When demand exceeds supply, prices and rents go up. Yet much of the political response in recent years has focused on trying to control demand or prices rather than increasing supply.
Rent controls are the most obvious example. They might reduce the rent paid by some lucky tenants who manage to find a controlled property, but they also discourage landlords from putting homes on the market, reducing supply and making it harder for everyone else to find somewhere to live.
Rent controls are now in force in most of Catalunya, and starting to spread to other areas of Spain.
The same problem applies to subsidies and tax incentives designed to help buyers, which end up pushing prices higher.
Funcas also takes aim at the politicians’ search for scapegoats.
Depending on who is talking, Spain’s housing problems have been blamed on foreign buyers, institutional investors, developers, second-home owners, landlords and tourist rentals, though the government likes to lump them all together as ‘speculators’.
All might influence particular market segments, but none explains a nationwide shortage of hundreds of thousands of homes.
Foreign buyers are a good example. The government has proposed punitive taxes or even restrictions on non-EU non-residents buying property, though they tend to buy holiday homes in coastal areas where they have little impact on the housing problems facing young Spaniards in Madrid or Barcelona.
Bashing foreign buyers might win votes, but it won’t build any homes.
Funcas also argues that comparisons with the property crash of 2008 are misplaced. Back then Spain had a credit-fuelled construction bubble, reckless lending and a massive oversupply of new homes. Today’s problem is almost the opposite: too few homes rather than too many.
As things stand, there is little sign of the banking risks that helped turn the last property downturn into an economic disaster.
Instead, the danger today is that the housing shortage becomes permanent, making it harder for young people to form households, workers to move where the jobs are, and businesses to find employees who can afford to live nearby.
None of this will come as much of a surprise to anyone who follows the Spanish housing market. If supply cannot respond to growing demand, prices will rise regardless of how many new controls politicians introduce.
It’s unlikely that the situation will improve without a change of government, so things will only get worse for a year or more.
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