Garzón: More Construction Doesn't Lower Housing Prices in Spain

Building more housing does not lower prices: the data Garzón ignores

Eduardo Garzón is clear: "Claiming that building more lowers prices is fighting with the data." This statement, made during a political push on housing, has ignited economic debate. The data he cites—more construction where square meters are more expensive—are exactly what his critics use to reach the opposite conclusion. In Spain, with an estimated deficit of 205,000 annual homes, the discussion is crucial: it decides whether the solution is bricks or intervention.

Garzón’s argument relies on a simple observation: Madrid builds more than Zamora, and prices are higher. Unquestionable, one might say. But correlation hides causality. It’s not that building raises prices; it’s that construction happens where demand—and therefore prices—are already high. The most cited example is Detroit: the US city has plenty of housing per 1,000 inhabitants, and prices are laughably low. At the opposite extreme, New York has scarce land and sky-high prices. The law of supply and demand doesn’t fail; looking at it backwards does.

Why build more where housing is expensive?

Because developers build to profit. If land and construction costs are the same in Soria as in central Barcelona, but the square meter sells for ten times more in Barcelona, the crane goes to Barcelona. High prices attract construction, not the other way around. As a circulating calculation summarizes: with a demand of 1,000 homes and an offer of 200, prices rise; with 1,200, they fall. You don’t need a Nobel to understand this.

The problem is that Spain doesn’t even build the minimum. The deficit of 205,000 annual homes worsens because residential construction isn’t starting: labor costs, land, and bureaucracy make many projects unprofitable at the prices the demand can pay. They build 40-square-meter flats with mediocre quality, not family homes. Meanwhile, the population grows—500,000 new residents a year are mentioned—and new supply barely reaches 40,000 units. The result is a tense market where tenants face hurdles and some even bid to secure a rental.

The argument of empty homes and second residences

Garzón and his supporters argue the problem isn’t scarcity but hoarding. Spain has many second homes and tourist rentals. If released, they say, there would be enough housing. The counterargument is geographic: these houses are in Castilian villages or on the coast, not where jobs are. A house in a village without work doesn’t solve Madrid’s rentals. And expropriating banks or funds, as some claim, doesn’t create new housing: it just changes hands.

The discussion often drifts into politics. Feijóo has promised a million homes if he reaches La Moncloa, a figure he considers necessary to "lower prices." Garzón, by contrast, points to regulation and public intervention. The clash isn’t just economic; it’s ideological. Some believe the market, if allowed to build, balances itself; others believe the market is held hostage by funds and prices won’t fall without intervention.

What peine with the 2008 real estate bubble?

In the years leading up to 2008, construction was unprecedented. Entire blocks, entire urbanizations, more homes than in almost any European country. And prices rose until demand couldn’t pay, and everything exploded. This proves, say Garzón’s critics, that building without control doesn’t prevent bubbles: it fuels them. But it also proves the opposite: when supply plummeted after the burst, prices took years to fall and never did so completely. In a market with finite land and growing demand, supply matters.

The deadlock is this: Garzón is right that building more doesn’t magically lower prices, especially if built where it’s already expensive. His critics are right that without building, prices can only rise. Both sides look at the same graph and see different things. The figure of 205,000 annual homes in deficit is not from anyone: it’s the gap separating the two narratives. And while they argue, rents keep rising.