The Spanish construction boom of the noughties and its consequences still shape the country. What does this have to do with the upcoming elections?
The housing crisis has driven tens of thousands onto the streets of Madrid in recent days, and a general strike has been prepared. People were upset by the forced eviction of an 87-year-old, and less than two weeks later the Spanish Prime Minister called new elections. At the heart of the crisis is the housing shortage in the country.
The starting point: Since 2015, Spanish asking rents have risen by around 80 percent - more than three times as much as consumer prices overall. For many people, owning their own apartment is hardly affordable anymore. In the 2000s, around half of 18 to 34 year olds in Germany and Spain lived with their parents. In the meantime, a gap has opened up: in Germany it is less than a third of young adults, in Spain there are now more than twice as many.
Ironically, one of the reasons for today's shortage on the housing market is a glut of real estate that overwhelmed the market almost 20 years ago: More than four million apartments were built between the turn of the millennium and the financial crisis of 2007. Authorities had generously approved construction projects, and savings banks became heavily indebted. When the real estate bubble burst, construction companies went bankrupt and investors withdrew. What remained were concrete frames, half-finished settlements and a construction industry that was in ruins.
Construction industry aging after boom
Before the bubble burst, around one in seven employed people in the country worked in the construction sector. Since then, according to an analysis by major bank BBVA, this share has halved. Employees retrained, became unemployed or retired early. With them, the construction sector lost experience and manpower. According to the bank, the industry is currently suffering from a shortage of staff and an aging workforce. Only about a tenth of employees are younger than 30 years. Although immigration has brought new workers, even rising wages are not enough to fill the holes in the workforce.
In addition, according to BBVA, there is the small-scale corporate structure. Only half a percent of companies have more than 250 employees. Profitability is also comparatively low: according to the analysis, the return on equity is only a third of the level in Germany or France. Under these conditions, the high demand for apartments cannot easily be translated into additional construction sites. Before the bubble burst in Spain, more than 600,000 apartments were being built per year, but after the crisis it was only a fraction of that.
While supply grew only hesitantly, demand has recently picked up significantly. Spain has been one of Europe's economic leaders in recent years. Economic and population growth reinforced each other - and increased the need for living space.
According to the Spanish statistics office INE, the population has grown by around three million people since 2015. The growth was particularly strong in the already densely populated regions. In the province of Barcelona, for example, for every ten people who already lived there, on average one more person was added in recent years.
Continued “upward pressure”
Especially in major Spanish cities, another group is increasing the pressure on the housing market and causing trouble: holidaymakers. According to Eurostat, the number of overnight stays booked online in Spain has doubled since 2018.
A considerable part of the demand on the purchasing market also comes from abroad. Foreign buyers now account for more than a sixth of home purchases. Because they see real estate as a holiday home or as an investment, buyers who do not live in Spain pay much higher prices, writes the Spanish Caixa Bank. She cites square meter prices of an average of 3,063 euros for this group of buyers. In comparison: Foreign buyers residing in Spain paid an average of 1,795 euros, Spanish citizens 1,713 euros.
“Strong demand coupled with more subdued supply growth” continues to put “upward pressure” on the market, according to the European Mortgage Association. The fact that the market cannot meet the strong demand today is not least because it overheated and collapsed almost 20 years ago.
