Bank of Spain warns housing shortage will keep prices high

Bank of Spain warns: not enough homes for projected demand

The Bank of Spain released its diagnosis in June 2023, offering little reassurance: housing supply will fall short of expected demand, further straining prices. The institution urges facilitating construction to ease pressure and warns that prices will show "downward resistance." Translation: do not expect discounts.

The picture left by this warning is of a market that does not fail due to lack of product, but due to excessive incentives not to produce it. Building little is profitable. And those who already own an apartment —or three— have no hurry.

What the Bank of Spain says about supply

The starting point is arithmetic. The INE (Spain's National Statistics Institute) predicts that the number of resident households in Spain will continue to grow while new construction fails to keep pace. Demand already far exceeds supply and is increasing. With this mismatch, the institution does not expect a price collapse, but sustained tension.

The message has an uncomfortable part for the official narrative: regulating rents or declaring tense areas is not enough if there is no more housing available to rent below. Regulating scarcity means managing scarcity, not solving it.

Taxes, land, and the business of not building

There is a contradiction that appears when you scratch beneath the surface: housing is a constitutional right, but buying new property incurs 10% VAT, plus documented legal acts tax, plus annual IBI (property tax). Added to this is the deed of sale. The tax bill is paid before getting the keys.

The other half of the problem is land. It is argued that releasing it costs nothing except for town halls, which would lose IBI revenue; and that developers only build when the numbers work, leaving plots fallow in the meantime. When good times return, that waiting cost enters the price of the new apartment.

This is not an exotic theory. Just look at who buys: large investment funds acquire and build housing dedicated to rental. Betting on future rents does not fit with a scenario of plummeting prices.

Closed apartments in city centers and tourist rentals

Another rarely discussed gem: the stock of empty housing that never reaches the market for sale or rent. There are entire buildings closed and boarded up in central Madrid, not in the outskirts. Behind this usually lie inheritances split among several heirs who cannot agree or lack money for renovation. The house exists; the effective owner does not.

Added to this is tourist rental, which according to circulating figures represents only 4% of the stock but is concentrated in the most popular neighborhoods, where it displaces neighbors and long-term tenants. Four out of a hundred seems few. Concentrated in the same block, they change an entire city.

Mismatch between supply and population influx

The tension has another demographic leg. Facing very low birth rates, there are recorded very high population entries, with figures hovering around 400,000 people per year for the country as a whole. The conclusion many readers draw is simple: if more people arrive and nothing is built, prices rise.

It is worth separating the data from the judgment. That demographic pressure on housing exists is arithmetic; that the solution is to close the door or open it wider is politics. What the market does not do is build at the pace of demand, and almost all positions agree on this.

Unemployment, birth rates, and brick as a lifeline

Over all this looms a background that almost nobody wants to look at: unemployment remaining above 10% and very low birth rates. For years, construction functioned as an escape valve when unemployment was tight, and back then it dropped to 8%. The problem is that that model was paid for with a bubble that burst in 2007 and dragged down half the economy.

From this comes an uncomfortable question that the debate leaves open: if the country needs more housing but a growing part of its population cannot afford it, is the goal to make the product cheaper or to sustain the value of existing assets? It may seem like the same thing. It is not.

The official response has been, so far, regulatory: tense zones, caps, promises of intervention. With available data, that does not build a single apartment. And without apartments, the only variable that moves is price, upwards or into thin air.

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Here the analysis ends. Supply does not arrive, demand does not drop, and those who could pull the first lever have no incentive to do so. The Bank of Spain provides the figure. Nobody provides the solution.