Buying a home becomes more expensive under growing demand due to the lack of new development projects

Spain is suffering from an "investment fever" in the residential real estate sector, and new housing is in the greatest demand on the market.

There is a shortage of real estate to meet the demand, especially given the large savings accumulated by investors during the pandemic. The desire to find a safe haven for cash under rapidly growing inflation also plays an important role.

In his introduction to the annual report on the housing market of Engel & Völkers, Gonzalo Bernardos, Professor of Economics at the University of Barcelona, pointed out: "The number of off-plan houses is incredibly small, and this is a huge problem. There is considerable market demand, but since there is no new supply, people turn to the secondary sector. It also overheats."

It is estimated that Spain needs between 120,000 and 150,000 new housing units per year to meet the fundamental demand. In 2021, a total of 71,000 new housing units were put on the market. " We can barely cover 50% of the demand. This puts pressure on the market and pushes up prices," explains José Ignacio Morales Plaza, CEO of the Spanish developer Vía Célere.

The developers faced several problems: a shortage of skilled labor, a rapid increase in the cost of building materials, and a lack of free land. Morales Plaza adds: "Unfortunately, the lack of free land does not solve this problem. Regional authorities create land plots too slowly for its "consumption" by developers."

Another developer, Aedas Homes points out that it takes several years to get the necessary land permit. The company believes that the authorities should work ahead of the market needs. In some cases, Aedas took more than three years to obtain a construction permit.

Markets where demand is greatest, for example, in large cities, have little or no free land. Morales Plaza points out: "This prevents us from putting more properties on the housing market, as a small amount of land forces us to acquire land that is not adapted for construction and requires several years of urban planning to bring them to the right state. This constrains our ability to bring more housing units to the market."