¶5. Despite significant increases in real estate prices, Spaniards continue to buy. Low interest rates (around 2%) and easily accessible credit have resulted in record mortgage lending. Additionally, extended loan periods have made mortgage payments more affordable, especially for young adults and immigrants. According to the Spanish Mortgage Association, the volume of mortgage lending increased by a factor of 4.5 between 1996 and 2004. The same source states that from 1990 to 2004 the average loan period increased from 12 to 25 years.

¶7. According to Juan Justo Tinaut Elorza (Subdirector General for Real Estate Policy of the Spanish Ministry of Housing), only 9% of all Spaniards rent homes, compared to the European average of 32%. The low supply of rentable housing in Spain is primarily attributed to insufficient legal protection for landlords. Bank of Spain economists Llanos Matea and Jorge Martinez told econoff that it can often take up to two years for a landlord to evict a delinquent tenant. They added that stringent rent control policies and freezes have also dissuaded potential landlords from renting their property. Tinaut commented that Spanish law requires landlords to offer tenants minimum five-year housing contracts and rents that cannot be increased by more than inflation. Although tenants are permitted to opt out of the contract after one year, landlords are bound for the duration. Consequently, many homeowners have and prefer to leave their property vacant rather than rent. The fact that so many potential rental properties remain empty in the face of such great demand is a unique phenomena of the Spanish housing market. It is estimated that up to 3.1 million properties in Spain remain vacant.

¶9. Solving the problem of rising housing costs for young people and moderate income earners was one of the Socialist government's main campaign promises. In early 2005 the Socialists began to follow through on this promise by establishing the Public Rental Agency to stimulate the rental market. The Agency has two main ********s: to offer potential landlords legal safeguards and financial incentives to rent their property; and to develop inexpensive rental housing for low income groups. In most advanced economies, the rental market is important because it acts as a balance on home prices. When housing costs start to rise, rental options become more attractive and demand to purchase homes falls. A stronger rental market in Spain would help to moderate growth (and decline) in housing prices. Tinaut seemed to infer that the GOS is unwilling to liberalize the rental code to facilitate renting. Instead the government has put its faith in intermediary agencies that work to increase the availability of rental property without expanding the rights of landlords. He remarked that intraparty political compromise on rental (and housing) issues is difficult to achieve.

¶12. An increase in interest rates over the short and medium term could have a dramatic effect on the housing market. According to the Spanish Mortgage association, 99.2% of all home loans have variable interest rates, leaving homeowners vulnerable to even slight rate hikes. A moderate rise in interest rates, from the current 2% levels to 4% or 4.5% would increase monthly mortgage payments and decrease consumer purchasing power. Reduced demand for housing and a slowdown in the construction sector could result in a consumption effect trickling through the economy. Alternatively, interest rate hikes would probably not increase rental costs.

¶13. Comment: After years of rising housing costs and record construction growth, many analysts believe that a gradual correction is about to begin. Spaniards without homes eagerly await a fall in housing prices [¡burbus!] while others, whose wealth is tied up in home equity, will be hard hit by a decline in growth [nuncabajistas]. In the past several years, booming home construction, which accounts for 6% of Spanish GDP, has been a linchpin of Spain's economic growth. Reductions in construction volume resulting from falling housing demand will weaken the economy. The current Socialist government has focused on improving the rental market in order to follow through on campaign promises to increase the availability and affordability of housing. Despite this fact, the GOS refuses to enact landlord-friendly legislation. The government seems to believe that public rental agencies represent the best mechanism to increase rental availability without infringing on tenants' rights.

¶14. The key determinant in the housing market is the variable interest rate mortgages most Spaniards hold. Even a slight rate increase by the European Central Bank would result in falling demand, lower home prices, reduced construction and possibly, a general economic slowdown. The political implications of a recessed housing market are also significant. If the economy begins to slow in 2006, it is widely speculated that the Socialist PSOE government will call early elections.

Iniciado por ladrillosconpatatas

Cable reference id: #05MADRID1088

UNCLAS SECTION 01 OF 03 MADRID 001088 SIPDIS TREASURY PASS TRACI PHILLIPS STATE PASS FEDERAL RESERVE AND DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT E.O. 1295 N/A TAGS: ECON [Economic Conditions] EFIN [Financial and Monetary Affairs] AMGT [Management Operations] SP [Spain; Balearic Islands; Canary Islands; Mallorca] SUBJECT: SPAIN'S BOOMING HOUSING MARKET AND THE UNCERTAIN FUTURE REF: 2004 STATE 00604

¶1. SUMMARY: The Spanish housing market in 2004 and the first trimester of 2005 can be characterized by record growth, easy credit, and poor rentability. In recent years, tremendous demand for housing, coupled with insufficient supply has resulted in rising prices and unprecedented construction. Despite similarly high demand and lower costs for rental housing, inadequate legal protection for landlords has limited growth in the rental market. The GOS believes that a more accessible rental market would help address the public's concern regarding affordable housing. Although the Spanish government recognizes the shortcomings of the rental market, it has done little to liberalize the rental code. In recent years, increases in home prices have outpaced salary growth and inflation. This fact combined with 2% interest rates and easy credit has resulted in record levels of mortgage indebtedness among Spaniards. Most public officials, private analysts and press sources agree that the housing market is overvalued and predict an eventual and gradual correction in the medium term. END SUMMARY.


Los HDLGP lo sabían todo, y no hicieron nada. Eso que os he puesto es la introducción, pero hay mucho más.

Iniciado por JoTaladro

Qué jrande. Por cierto, ¿de donde has sacado esto?

¶1. SUMMARY: Recent public opinion polls show that rising
housing prices are a serious concern of the Spanish public.
Between 1997 and 2002, housing prices rose 78% in real
terms. A hot real estate market based on strong demand and
low interest rates has fed the sharp increase. Government
regulation, which restricts the development of available
land, has also impacted housing prices. The economic
consensus is that prices are overvalued. Some conclude
that a property bubble has been forming, but government
officials and the majority of private sector analysts
believe a gradual correction is coming without a "bubble
bursting". Still, given the economic implications of a
sharp fall in housing prices and public anxiety over
affordable housing, the ruling Popular Party (PP) and the
opposition Socialist party (PSOE) are both making housing
policy a central plank of their economic platforms in the
upcoming national elections. END SUMMARY.

¶8. Regulation and local government real estate policy also
contribute to the rise in Spanish property costs. Local
governments control the amount of property available for
new housing, creating a patchwork of policies across Spain.
Many critics feel that local government decisions, which
are often made without public input, are influenced by
landowners who want to see their land values rise. Other
critics see the scarcity of land zoned for development as
designed to maximize the local governments' property tax
income by artificially restricting supply. Flynn noted the
need for greater flexibility and transparency in Spanish
real estate regulation, and he urged the Spanish to work
towards a freer property market that can self-regulate.

¶14. The opposition PSOE has also made the issue a campaign
theme. The Socialist party line accuses the Administration
of enacting legislation that encourages speculation,
failing to recognize that many citizens cannot afford
housing, and being content with the situation although
Spain is the EU country in which it is most difficult to
obtain housing. They also accuse the ruling party of
shunning debate by offering hollow responses to worries
over increased prices such as "When people buy homes, it is
because they have the money to do so." We expect the
Socialists to increasingly emphasize this issue as the
March election approaches.

¶15. COMMENT: Though most analysts bet that any housing
overvaluation will adjust gradually rather than abruptly,
the PP government and the opposition are keenly aware of
the political and economic issues surrounding the housing
market. On one hand, a large percentage of Spanish society
wants housing costs to come down. On the other hand, many
Spaniards' nest eggs for retirement are tied up in real
estate. With construction driving economic growth in
recent years, a steep decline in housing prices, connected
with a sharp slowdown in the market, would also drag on
economic growth. With interest rate policy outside of its
control, the next government will need to carefully manage
housing policy to assist those priced out of the market,
and to prevent a collapse of a key sector of the Spanish
economy.