Significantly Fewer Homes For A Much Smaller Population

7 March 2016 – Cinco Días

The real estate sector is preparing to undergo a comeback this year after the burst of the real estate bubble caused house prices to depreciate by 35% since 2008 and more than half of its productive fabric was destroyed. The cranes have returned, albeit, in moderation, for the time being. And the demographic projections support this caution, given that between now and 2029, Spain is expected to lose one million inhabitants.

In the face of some apparently overly optimistic estimations from certain players in the real estate sector about the evolution of the market this year, experts and other operators, such as the national trade association of property developers APCE emphasise the need for prudence and restraint when taking on new projects.

The truth is there are many reasons to be optimistic. House prices seem to have bottomed out across most of the country, sales are continuing to maintain the good tone with which they closed last year and the return of financing has resulted in a higher volume of solvent demand. If the improvement in the labour employment continues in the short and medium term, then property developers will be in no doubt that 2016 will be the year of the return of construction with figures showing the market taking off, after it lived the worst crisis of its recent history.

But, as always, there are risks and threats that cannot be ignored. The most short-term factors will be those relating to the good performance of the economy: employment, credit and interest rates are three key variables. Plus, the political climate. (…).

However, one of the variables that was critical during the previous real estate boom and which all Governments and economic agents must bear in mind is that of demographics.

At the end of this year, the National Institute of Statistics (INE) will update its long-term population projections, which it does every two years. The last update, at the end of 2014, drew devastating conclusions that the real estate market cannot ignore if it wants so avoid another phase of runaway growth, with the undesirable effects on price, supply, indebtedness, activity and employment. Thus, in 2015, INE’s first prediction was fulfilled. It was the first year during which the number of deaths exceeded the number of births, and so began the population decline that INE has forecast will happen over the next 15 years, which will amount to 1.02 million inhabitants (2.2%) in total and will amount to 5.6 million inhabitants over 50 years. In this way, there will be 45.8 million residents in Spain in 2024 and just 40.9 million in 2064.

The reduction in the population will happen as a result of this gradual increase in deaths over births, a trend which, if nobody remedies it, will become even more accentuated, above all from 2040 onwards, and which will not be mitigated even by the flow of migration. Not even considering that over the same period there will be a net positive migration balance of 2.5 million people  (the difference between immigrants who arrive in Spain and Spaniards who move overseas). The truth is that the baby boom generation, the largest in Spain’s recent history, explains to a large extent how the most prolonged period of rising prices and house sales last century was created from the end of the 1990s. (…).

Gómez-Pintado has already launched a study at APCE to calculate, in the most comprehensive way possible, what the demand for homes will be by autonomous region between now and 2017. “The purpose of the study is to establish ranges of need for housing and to avoid constructing in places where there is no demand”. (…).

Although the study has not been completed yet, Gómez-Pintado revealed that his projections will fall in the intermediate range, between the most pessimistic, i.e. those who calculate demand of just over 60,000 homes per year, and those who are convinced that almost 250,000 new homes may be built.

According to Josep Oliver, Professional of Applied Economy at the Universidad Autónoma de Barcelona, not even the pull on demand for housing from foreigners can justify the construction of 250,000 homes per year. (…).

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake