Developers in Spain Need to Build 2.5 Million New Homes to Satisfy Demand

14 October 2019 Foreign and domestic investors have recently poured a larger and larger amount of money into Spain’s residential rental market. In the last two years, large investment funds and developers like Blackstone, Ares, Greystar, TPG, Aedas, Quabit, Metrovacesa, Vía Célere have invested in the sector, going after the relatively high yields available.

The increasing investment in the sector is due to a series of factors. The last few years have seen major price increases, for both home sales and rentals, in Spain’s biggest cities, particularly in Madrid and Barcelona. The high cost of buying a home is also leading many Spanish families to forgo potentially buying a home, as they would have in the past when prices were more affordable.  Those families are now in the market for rentals.

Considering that the rising prices are due to an imbalance between supply and demand, common sense would suggest that a relatively easy solution would be to great increase the supply of homes for sale and rent. The total number of homes for rent in Spain is equivalent to 23% of the total housing stock, 9% lower than the European average of 34%.

To reach the European average, therefore, developers would have to build another 2.5 million homes, taking the total for Spain to 8.5 million homes. Building that many homes in the next fifteen years would require that developers construct approximately 167,000 houses per year during that period. That amount of development would require a total investment of roughly €300 billion, or 25% of Spain’s current GDP.

The need for that kind of investment in affordable rental homes to help curb rising prices is beginning to be addressed in a series of measures by some political parties, such as the PSOE. One of the proposals includes a law that would facilitate the transfer of the surface rights for public lands to developers which agree to building affordable housing, a measure that developers have demanded for years.

One of the biggest obstacles to such large-scale development is the complexity of managing and aligning interests between the municipal, regional and central governments. Market sources recommend common regulatory frameworks to facilitate the creation of greater legal certainty and the agility to obtain the necessary licensing and permits.

Original Story: El Confidencial – Elena Sanz

Adaptation/Translation: Richard D. K. Turner