Housing is the right of all Spaniards, which is proudly stated in the Constitution of the country: "All Spanish citizens have the right to decent housing". Nevertheless, the current situation with exceptionally high prices for residential real estate in the country clearly demonstrates that good ideas set out on paper are not infrequently only on paper and remain. Housing in Spain today is not a right, but a luxury and accessible mainly to foreigners.
All this is due to various factors, but in the end, we have the inevitable trends of rising prices and falling incomes of the population. Especially in the last couple of years. The economic recession threatening the world and the risks it creates for the Spanish economy do not add to optimism, nor does inflation with rising interest rates on lending. But how did the Spanish housing market come to this state? How did the situation come from the boom of the mid-00s to the current moment? Data from the Fotocasa real estate portal will tell us about this.
From the economic boom of 2005 to the crisis of 2008
The economic boom and the last heyday of the affordable housing market in Spain occurred in 2005. At that time, the average price per square meter of a typical apartment was approximately at the level of 2,400 euros, that is, an object with an area of 80 square meters could cost the buyer an amount in the region of 192,000 euros.
The boom in real estate and mortgage lending was observed all over the world. He forced a lot of people and companies to make risky decisions, decisions for the sake of profits that were not worth making. In the end, I had to pay for everything and, as is usually the case, ordinary consumers paid. Yes, we are talking about the crisis of the late 00s, the Great Recession, which officially began with the collapse of Lehman Brothers Bank, the fourth largest US bank at that time.
The world economy has rapidly collapsed into recession. Unemployment has risen sharply, the housing and mortgage bubble has burst, markets have fallen, and bankruptcies have begun. The state began to print money or pay with budgetary funds for the recklessness of banks, since the price of their fall was too high. Even after the end of the acute phase of this crisis in the early 2010s, its echoes have been heard up to the present day. In many ways, the current world problems are suppressed, but unresolved problems of 2008.
Negative Euribor in 2016
In Spain, the acute phase of the crisis lasted for almost 10 years. The burst "bubble" in the real estate market led to a rapid drop in prices. The average cost per square meter, according to the Fotocasa index, decreased to 1,623 euros by 2016. Housing with an area of 80 square meters could leave the buyer for barely 130,000 euros. Low prices were the result of low demand for housing, which was associated with the small financial capacity of Spanish households. To solve these problems, stimulate consumption and economic growth, the Euribor rate was lowered below zero. In fact, borrowed money has become practically free.
The new demand led to an increase in the volume of new construction and soon more and more new housing objects began to arrive on the market, creating a large supply and keeping prices in an affordable range. Low interest rates persisted in the early 2020s, acting as a means of supporting the economy against the backdrop of the outbreak of the pandemic.
COVID-19
At the end of 2019 and the beginning of 2020, a new pandemic suddenly hit the world. COVID-19 has become an unprecedented event for the world, unexpected in itself, but still not completely unexpected for the markets. Years before, economists from different countries pointed out the precarious situation of the world economy and the dangers that sudden "black swans" like a pandemic can bring.
Anyway, the economy was under a serious blow, regulators had to push the printing press even harder and bring down the key rate to record lows. In other words, by borrowing money from the future, regulators and governments poured money into the economy of the current day.
In 2019, the average price of an apartment in Spain was 1,875 euros per square meter. In 2020, it decreased to 1,840 euros. The object with an area of 80 square meters has fallen in price to almost 147,300 euros. Long-term low prices ended in 2021, when the acute phase of the pandemic subsided, the economy got a recovery start from a low base, huge accumulated demand and funds splashed out on the market.
First of all, the funds of the richest people on the planet, who for a couple of years could not spend them on anything that they used to spend normally. Foreigners and Spaniards ran to buy new housing, increasing demand, reducing supply and pushing prices higher and higher. In the end, Spanish buyers spent all their money, but foreign investors and expats only gained momentum in purchases. They especially increased in 2022, when a recession loomed on the horizon and for many properties has also become a lifeline for savings.
According to INE data, from 2016 to 2021, the average monthly salary of Spaniards increased by 11.11%, but growth in 2022 slowed significantly. At the same time, inflation has only gained momentum, starting to rapidly devalue the marked increase in income of Spanish households. At the same time, this income still lagged by 3-4% from the increase in housing purchase prices and the gap has only increased in the last three years. Thus, the price per square meter of residential real estate from 2021 to 2023 increased by 10.04%, from 1873 to 2,061 euros.