News

Montalvo and Montoriol deny a new real estate boom: “Housing prices are on the rise due to increased demand and not to speculative factors linked to credit conditions”

Population growth, along with the annual construction of 200,000 new homes, doubles the supply of new housing, as 110,000 building permits are requested each year

The series of dialogues [Un] Equal Opportunities organized by the Ernest Lluch Foundation and the Ivie, with the collaboration of CaixaBank, continued with a second session that covered the reasons behind the problems of access to housing in Spain, as well as possible solutions. A first look at the housing market in Spain was provided by José García Montalvo, Professor of Applied Economics at the Universitat Pompeu Fabra, Research Professor at the Barcelona School of Economics and Ivie; and Judit Montoriol, Lead Economist in the Spanish Economics department at CaixaBank Research.

The experts highlighted the disparity between housing supply and demand. Montoriol pointed out that while 200,000 new homes were built in 2023, only 110,000 new construction visas were issued, a discrepancy that is forcing housing prices to go up. Moreover, these needs will probably increase in the future since, according to new projections by INE, 330,000 additional homes will be built annually in the coming years to accommodate the growing migratory flows, which are important because they counteract Spain’s aging population.

The boom in housing prices can be explained by the increase in demand which exceeds by far that of supply, and in addition, the prices have increased at a higher rate than wages, especially among young people who are having a harder time becoming independent. Only 32% of young people today can afford a home, compared to 65% in 2008.

Specifically, Montalvo wished to emphasize that the difficulties of access to housing, due to the excessive effort required to rent and purchase, is affecting mostly young people and immigrants which are population groups in the lowest income quintiles.

Both speakers agreed that the increase in prices can be explained by the mismatch between supply and demand, rather than another real estate bubble. According to the CaixaBank Research economist, the increase in house prices is sustained by the increase in demand and not by speculative factors related to credit conditions because, in real terms, the price of housing in Spain is 25% below the peak of the bubble in 2007.

The two economists offered some of the measures that, in their view, could aid in reducing this gap. On the one hand, Montalvo insisted on the need for the public sector to support and promote the development of affordable rental housing. He added that limiting rent prices is not the answer since it only lowers the prices of the most expensive properties, but not those that are below the average market price, which are precisely the ones that people with lower income levels can access. According to Montalvo, price control also results in a reduction in the supply of high-end apartments; less money invested in rehabilitation, since it cannot be written off; and higher prices in neighborhoods next to those with lower rents.

In Montoriol’s opinion, the primary issue is lack of available land. Thus, she views it is essential that the Administration assist in making more land available for housing development. She also mentioned that the construction sector suffers from low productivity and excessively long manufacturing periods. For these reasons, she suggested promoting industrialized construction, which not only lowers housing prices, but also speeds up the building process. Regarding this subject, Montalvo recalled the financial difficulties this kind of industrialized housing faces and urged the Administration and financial institutions to support loans for buildings that are not fixed to the ground.

In any case, Montalvo believes that  home ownership should not be an initial option for young ones. He argues that the rate of home ownership should not be 85% as it has reached in Spain, instead, social renting for young people should be encouraged as in many other developed countries.