House prices continue to rise in Spain

by Lorraine Williamson
house prices
ASSSA

The housing market is also tense in Spain. Households’ efforts to buy a home in at least five capitals are close to the level of the real estate bubble. The question is, why do house prices keep rising?

House prices in Spain will continue to rise this year. It is estimated that new-build apartments will increase in price between 2.5% and 4%. The cost of renting increases by up to 6%.

Supply and demand

According to the latest study by real estate agency AURA REE, Reel Estate Experts, the main problem is the lack of housing supply in the face of growing demand. The agency assumes that there is a shortage of 1.2 million homes to meet the demand.

“The current imbalance between supply and demand in the housing market leads to the estimate that the housing shortage could exceed one million in the coming years.

“We are in a market characterised by strong demand. This is supported by a resilient labour market. In addition, we also see a recovery in the gross disposable income of households. Finally, the expected recovery of the investment market also plays a role,” says Andrea Rodriguez, director of AURA REE Spain.

The offer, on the other hand, is kept to a minimum. This is due to the low production of new homes, about 80,000, and the shrinkage of the existing stock.

Pressure on government

For years, the development sector has been asking the various governments to accelerate the development of land in order to increase housing production and thus reduce the pressure on prices. According to elEconomsista.es, Spanish Prime Minister Pedro Sánchez has drawn up a plan with measures that will speed up permits and facilitate the launch of new developments.

Positive development of real estate transactions

AURA REE highlights that real estate transactions have behaved very positively in the year 2023, with 590,000 homes. “Despite the fact that this number does not exceed the 2022 figure, this is a remarkable number. It was only surpassed by the years 2022 and 2007, and this taking into account the sharp rise in interest rates, low available supply and macroeconomic uncertainty,” the report said. It also notes that “Madrid is one of the areas where sales have fallen the most in the last year”.

Prices are rising sharply

In terms of prices, the analysis shows strong growth in both the existing market and the new-build market. The coastal areas show the strongest growth, followed by Madrid.

New construction

The demand for new construction in Spain is growing faster than the demand for existing buildings. “In this regard, it is worth highlighting the case of the coast. The growth lies not only in the development of prices, but also in the development of the luxury concept. This is where homes of ever higher quality are offered.

Tension in the rental market

On the other hand, the rental market is one of the most tense due to the shortage of available supply, with an average of 63% compared to 2019 figures, with Madrid (-78%) and Barcelona (-71%) being the extremes. “It is worth noting the record price increases, which only in Madrid reached increases of up to 20% in the last 12 months,” the real estate platform said.

Also read: Five Spanish cities are struggling with the real estate bubble again

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