Madrid housing prices jump 7.4%, reigniting bubble fears

Housing: Madrid rises 7.4% and the ghost of 2008 returns

Is Spanish housing on the verge of bursting as it did in 2008? The data that peine this question is specific: Madrid capital recorded a 7.4% year-on-year price variation in April 2024. With that figure on the table, opinions are split. Some see the prelude to a crash; others respond with an uncomfortable question: where is the credit explosion that characterizes every bubble?

The discussion is not new, but the context is. In 2008, the country had a huge stock of unsold homes and a financial system saturated with real estate. Today, the dominant narrative says the opposite: scarcity. Around 100,000 homes are built annually while the population grows by about 600,000 inhabitants, according to calculations circulating in the debate. Supply does not meet demand, and prices do what they know how to do when product is lacking.

Why are housing prices rising if there is no bubble?

The scarcity thesis has its own arithmetic. Madrid has spent a decade creating more households than homes built, narrowing the available margin year after year. Added to this is a vacant housing stock that, far from growing, has been falling for more than a decade: around 100,000 units in the region, according to cited data.

The credit argument weighs most heavily among skeptics of the word "bubble." Without explosive credit growth and without speculative demand significantly exceeding use demand, they argue, no bubble is possible. All real estate bubbles have been, first and foremost, credit bubbles. And that ingredient, today, does not appear with the intensity of 2008.

A third factor is mentioned: regulatory antiestéticar. Uncertainty about new rules, caps, and tenant protections would push owners to withdraw product or raise prices to cover risk. The result would be a tighter market, not a more abundant one.

Madrid's 7.4% vs. the rest of Spain

The 7.4% headline belongs to Madrid capital, and here begins the nuance that breaks the uniform narrative. In municipalities like Coslada, Leganés, or San Fernando de Henares, current prices remain below those of 2008: €2,300 per square meter vs. €2,500 in Coslada; €2,180 vs. €2,400 in Leganés; €2,100 vs. more than €2,300 in San Fernando. Nearly twenty years later, without adjusting for inflation.

If the 42% cumulative inflation since 2007 is applied, the drop in real terms is even greater. The problem is not that real estate is expensive everywhere: it is that it has concentrated in hubs where demand is tight. And there, the picture changes.

Rents, however, have skyrocketed in constant euros in the last four or five years, even in areas where purchase prices have not recovered peaks. That asymmetry—flat purchases, rising rents—is emptying young people's pockets and fueling the sense of expulsion.

The generation that cannot move out

Macro data becomes biography when you look at the details. Housing is not accessible for young people, while labor precariousness and tax pressure do not ease. The alternatives described are three: grit your teeth and bear it, emigrate, or stay at your parents' house. None is a housing policy.

The harshest diagnosis points to the fact that the problem is not fixed by a price crash. Even if the bubble bursts, the lack of political and social will leaves the problem intact. Voters of the two major parties, it is argued, would not tolerate measures that would truly move the market: liberalizing land, building more, reducing friction.

Some go further, arguing that collapse will come when migratory flow turns from enormous to negative, as peine from 2011 onwards. This would require a fiscal contraction forced from Brussels. There is no date, but the mechanism is described precisely.

Can 2024 be compared to 2008?

Direct comparison with 2008 is, for many, misleading. Then, credit had run wild and the stock of unsold homes was gigantic. Today, there are no entire empty subdivisions nor a financial system neck-deep in real estate. The temporal equivalent, it is said, would be 2000: there would still be years of swelling before the burst.

Current prices are also lower than those of 2008 in many municipalities, and much inflation has occurred in between. The argument is reinforced by another data point: unemployment is at historic lows and conditions for evicting primary residences are stricter. All this supports the market floor.

But skepticism has its own ammunition. In 2007, employment was also at lows and everything seemed solid. Five years later, unemployment reached 25% and more than a million immigrants left. If there are many more now than then, how many could leave when times get tough? The employment crisis, when it arrives, would catch many people without savings.

Tourism and housing as a theme park

One factor creeps into all conversations: tourism. Coastal cities and historic centers have become, according to the sharpest description, theme parks. Visitors bring fresh money, but they also compete for the same square meter as residents. Gentrification stops being an academic concept and becomes a bill.

The phenomenon is not exclusively Spanish. In Switzerland, prices rise 5% annually while in Germany they have fallen up to 20% in the last year. The pattern repeats: too many people with money and little real estate. Pension funds buy housing and reduce available supply for sale even further. The problem, they say, is across Europe.

The uncomfortable conclusion is that the Spanish market can be a bubble for the average salary and, at the same time, have room to grow while foreign buyers enter. That duality explains why prices rise and the sense of expulsion also increases.

In the end, the question is not whether real estate is expensive—it is—but who holds the key to the door. And that key, apparently, is not held by those born here.