Housing: Euribor at 5% Crashed Prices, Not Supply

Euribor Fell to 1% in 2009, Yet Flats Remained Unsold

No one disputes that housing prices respond to supply and demand. The problem is that this phrase, repeated like a mantra, explains almost nothing of what has peine in Spain over the last two decades. In 2007, Spain was building more than France, Italy, and Germany combined. Prices skyrocketed. And when it all collapsed, it wasn't due to a lack of bricks: it was because of the 5% Euribor and because four million people suddenly lost their jobs.

What Peine in 2007: New Construction Record and Soaring Prices

The prevailing argument is that if houses are scarce, prices rise, and therefore the solution is to build more, free up land, and expedite permits. No sensible person denies this as a general principle. The uncomfortable detail is that the period of greatest construction in recent Spanish history coincided with the largest price bubble. More housing was being built than in the three largest eurozone economies combined, and the price per square meter rose as if there were no tomorrow. If supply dictates, something doesn't add up.

The explanation gaining traction in the analysis is not in the bricks, but in financing. When credit dried up and the Euribor hit 5%, the market ran out of solvent buyers. The supply was enormous. Demand simply disappeared. And prices fell.

Euribor as a Thermometer: From 5% to 0% and Back Again

Here comes the dislodging data. In July 2009, the Euribor was already at 1.2%, and yet no one was buying, because the problem was employment, not the cost of money. In 2014, the index hovered around 0%, and prices hit rock bottom. In 2023, with the Euribor above 4%, demand was at its peak. Three scenarios, three different outcomes: interest rates explain part of the cycle, not the entire cycle.

Some draw an uncomfortable conclusion from this for the official narrative: in a market sustained, rescued, and intervened with public money, the law of supply and demand functions with crutches. And the crutches are provided by the state.

SAREB and the Bailout: When the State Propped Up Prices

In 2012, SAREB (Spain's 'bad bank') was created to remove toxic assets from failing banks that threatened the entire financial system. The stated objective was to avoid a fire sale. In other words, intervention was undertaken to prevent properties from being sold off cheaply. This was managing the debris of an already burst bubble, not the cause of current scarcity. But it serves to recall that the state has been involved in the real estate market in both directions, and not always to lower prices.

The most cynical interpretation, often repeated, speaks of privatizing profits and socializing losses. The more technical interpretation says that without that firewall, the collapse of the financial system would have dragged the entire economy down. Both things can be true simultaneously.

Poland and Portugal: Building a Lot Doesn't Guarantee Low Prices

The most cited counterexample points east and west of the peninsula. Poland is the EU country that builds the most and, it is argued, has the most expensive housing relative to salaries. Portugal builds more than Spain with much less demographic pressure, and its properties are more expensive in relation to the average salary. If bricks were the decisive variable, those markets should be cheap. They are not.

Added to this is the population factor: over 50 million people registered in Spain, with a declining native birth rate. Those who frame it this way reduce the problem to a differential between inhabitants and available housing. Those who dispute it respond that demand is not a fixed figure, but depends on who can pay and with what credit.

What to Expect

Given these factors, it is foreseeable that measures on prices and rents will continue to have little impact, and that the market will adjust through credit and employment, as it always has. If the Euribor eases and salaries don't keep pace, demand will remain constrained. No one has yet demonstrated that a decree can build a building.