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The Housing Paradox: Supply Is Failing To Match Demand

21 June 2016 – El Confidencial

Spain is going to need 180,000 homes per year until 2025 to meet the demand being created by new households. In the Community of Madrid alone that means 25,000 new units. Those are the forecasts published by the real estate consultancy CBRE, which estimates that the existing stock contains around 300,000 homes, of which between 20-25%, in other words, around 75,000, will never be sold because no-one wants to buy them, either because of their locations or other characteristics.

(…) According to Samuel Población, the National Director of Residential Assets and Land at CBRE, “by the beginning of 2017, the stock of new homes will have pretty much been absorbed; what is left will be very localised and technical, which will drive the launch of new developments”. To give us an idea, in the centre of Madrid, there are currently only 800 (new) homes up for sale and in Barcelona, there are just over 1,000, according to estimates from Sociedad de Tasación.

Specifically, markets such as Madrid, where demand is high – house sales have risen by 13% in the capital in the last year – and where there is a shortage of new homes being constructed, account for almost one in seven of the new homes being built. Nevertheless, the available land inside the M-30 ring road has capacity for less than 1,500 homes. In Cataluña, demand amounts to 14,000 homes, of which Barcelona accounts for 7,900 units, ahead of the Balearic Islands, where demand reaches 7,544.

In fact, Madrid has become one of the most active markets from the point of view of the residential sector, given that almost 30 operations have been signed there in the last year and a half, which have involved a total investment of almost €1,000 million, in some cases exceeding €100 million each (such as the cases of the plots in Raimundo Fernández-Villaverde and Juan Bravo, 3). However, that activity contrasts with the paralysis that exists in other autonomous regions, such as Extremadura, Castilla y León and Castilla La Mancha, where demand is currently non-existent, according to Lola Martínez, the Head of Research at CBRE.

According to Samuel Población, this strong demand in Madrid has already had a direct effect on prices. “We have seen operations involving land, where prices have doubled in just a few months…”. In fact, although the consultancy firm forecasts that house prices will rise by 6% on average across Spain in 2016, it does not rule out the possibility of higher price increases in the centre of Madrid, where the average price of new homes amounts to €3,000/sqm, and where prices for new developments in the neighbourhood of Salamanca are as high as €10,000/sqm.

The lack of buildable land inside the M-30 ring road, the paralysis of the sale of public land and the high prices of plots owned by private developers means that the market for renovations is gaining strength in the centre of Madrid. Some of the most notable operations in recent months include the refurbishments of the former Agencia EFE building and the former tenement building in San Juan de la Cruz, which are both going to be converted into luxury homes. (…).

Original story: El Confidencial (by E. Sanz)

Translation: Carmel Drake