Are We European When It Comes to the Housing Market?

Let’s start by breaking a myth. Yes, housing prices have risen ostentatiously since 2015 in Spain. Real prices — inflation-adjusted — have doubled since then. It is a trend similar to what is observed in the rest of European countries, with the difference that the largest price growth rates in Europe occurred in 2021-2022, whereas in Spain they have been occurring since 2024.

For Spain, if we extend the series in time, the real price remains clearly below its maximum levels (in 2007), with the sole exception of new housing, which just this 2024 has reached the 2007 levels. Therefore, since that pre-crisis year, prices of other goods have grown more than housing prices. Consequently, if there is a problem of accessibility to homeownership, one should blame more the evolution of wages than the prices of housing.

“If there is a problem of accessibility to homeownership, one should blame more the evolution of wages than the prices of housing”

Now let’s turn to rents. Here the situation is subtly different. Although in Catalonia, the INCASOL data (the rental series for Spain begins in 2015) show real values below those of 2007, here since 2018 we have surpassed nominal values (rents surpassed in 2024). And more importantly: if we limit the view to Barcelona and its metropolitan area, where half of Catalonia’s rental contracts are concentrated, the real level of rents is already ten percentage points above its 2007 maximum. This is also common in Europe: rent price increases are concentrated in large cities and their metropolitan areas.

Scarcity or lack of competition?

They are the two explanations that economic science gives for a price rise like the one experienced in both the property market and, especially, in the rental market since 2015. The Bank of Spain, in its 2023 annual report, tells us that both the weight of mercantile companies and that of owners with more than ten dwellings are around 8%. Although the trend in recent years is toward a slightly greater concentration. In Barcelona city, where these percentages reach the state’s maximum, they are around 12%, but they do not seem alarming percentages in terms of competition. The problems stem from scarcity.

The same Bank of Spain report quantified an accumulated deficit of 600,000 housing units in 2023. It is the result of several years where we built, approximately, about 60% of the housing that is needed relative to the creation of households. In 2024, twice as many households were created as housing units (100,000), increasing the deficit despite projections of greater household creation. This point marks Spain’s divergence from the rest of the European Union.

“The message is clear: ‘A new home, a new housing… built,’ but it anchors us to the prejudice that building is not progressive. Right now it is and a lot”

We share with Italy, Ireland, Denmark or the United Kingdom the idea of building less than the demand for new households, something that does not occur in France, Sweden, or Finland, where this ratio is above 1 (as reflected in the following chart). A note: there is a correlation between price growth since 2018 and those two rhythms of new housing creation. Continuing with the group where construction keeps pace with households, prices have grown at clearly lower rates — Finland (-1%), Sweden (14%), France (21%)—, in the group where construction proceeds at a pace far below that of households — Ireland (54%), Spain (44%), Denmark (30%), Italy (13%)—. The message is clear: a new home, a new housing… built. It isn’t that difficult: the INE projects households up to 2039, but it anchors us to the prejudice that building is not progressive. Right now it is and a lot.

Political or territorial fragmentation does not help, for fragmentation is used to paralyze. Nevertheless, we must apply effort and nuance: building is building for sale, for private rental, but especially for affordable rental and social rental. Because another point that distances us from the EU is that in Spain only 2.5% of rental housing (1.1% of total housing) is social rental. The EU average sits around 10% and we are far from the Netherlands, Sweden, Denmark, Austria, Poland, France or Finland (closer to Germany, Italy or Eastern European countries). Oh! And by the way, vacant housing is not where we need it (the large cities and their metropolitan areas) and their census values (calculated by the INE in 2020, a very special year) are greatly overestimated. This was confirmed by Ada Colau’s Barcelona, which commissioned a study to check the consumption of vacant housing and reduced the estimate from 9% to 1.2%.

As for accessibility, it does not seem that Europe has a problem in the property market. In this market, only 15% allocate more than 25% of their disposable income to mortgage payments. For Spain this percentage is even lower (14%), far from Greece’s 65%, Norway’s 45%, Serbia and Bulgaria’s 40%, and Germany and Hungary’s 35%. Where the accessibility problem concentrates is in the rental market. Here 50% allocate more than 25% of their disposable income to rent payments. In Spain we are higher (60%), and there are some countries still with worse records, such as the Netherlands, where the figure jumps to 80%.

Here we must focus our efforts, in the rental market, some in both social and private (Spain), others only in private (Netherlands). Scarcity makes us even need to handle statistical indicators with care. In Spain accessibility data in new rental contracts are improving. It is an illusion. Has rental regulation finally taken hold? No, it is still not generalized, and where it is, the regulated tenants do not move because they know they won’t find another. The rise of the minimum wage? No, someone earning minimum wage cannot rent. The queue is growing longer, the casting to secure a new rental apartment on offer is becoming tougher. The panorama is such that ads are no longer even posted on platforms: ads last only hours, and the few who manage to access — the first in line —, of course, are in a better economic position.

Fighting scarcity

We need to break with scarcity. This implies minimizing any regulation that fuels it. Konstantin Kholodilin, from Berlin’s DIW, summarizes the scholarly literature on rental regulation and shows that 70% of evaluations have found a clear reduction in supply. During the period of rental regulation in Catalonia, the supply of new contracts fell by more than 20%. Something similar happens with the recent debate on banning speculative purchases. In the Netherlands, the ban on buying to rent led, in 2024 Marc Francke and others to find that rents rose by 4% more due to the reduction in supply.

“During the validity of rental regulation in Catalonia, the supply of new contracts has fallen by more than 20%”

The literature on the impact of prohibiting or restricting tourist rentals in tight areas indicates that there is indeed a small effect on increasing the supply of long-term rentals. But the scope is very small, because there are alternatives. Not all tourist apartments will magically move to the traditional rental market. Let’s heed science and data. And if we have to yield to short-term thinking, let it not be for free; let us follow the Basque Government, which in exchange for granting the municipality the designation of a tense area requires it to allocate land for construction. 

Still, the best approach is to accompany the rise in supply, aligning it with incentives that fit our objectives. Incentives are more reversible than regulations, and we have many fiscal possibilities to promote purchases for a first home or to put it up for rent (even distinguishing between private and social). We can do the same (in fact the Housing Law already does, perhaps somewhat timidly) to encourage rehabilitating the few vacant homes in big cities and allocating them to social rental. But we need time, agreements, and solid housing policy.