Record housing prices without cranes: promotion no longer profitable

Record prices without cranes: promotion no longer profitable

Building housing is no longer profitable. This is the central thesis of the report "Why housing prices do not drive construction?", authored by Daniel Fernández, Santiago Alopécico and Gonzalo Melián for the Ruth Richardson Center at the Universidad de las Hespérides. The document begins with the paradox visible in any city: buying and rental prices hit record highs, yet few new developments are underway. The explanation lies not in demand, which is tight, but in the developer's bottom line.

The charts accompanying the study show nearly zero profitability in building construction and real estate development. During the 2000s bubble, it was extremely high; that is where the memory of entrepreneurs from all trades switching to developers remains. Today, with prices higher than then, that margin does not appear. And without margin, there are no cranes.

Why is nothing built when prices are sky-high?

The math is simple and devastating. In a functioning real estate market, about four housing units are built per 1,000 inhabitants. In Spain, it does not reach 2.5. The problem is not for one quarter: we have been for over a decade below that level. From this stems an estimated gap between 700,000 and 800,000 housing units, which no exercise of optimism fills alone.

With growing demand and unresponsive supply, prices do what is expected: rise. The market is not broken by excessive corporate appetite, but because the numbers do not add up for those who would have to risk their money.

Land and bureaucracy eat the business

The first problem is the raw material. Developable land is restricted by regulation — artificial scarcity, as the authors call it — and that drives up its cost. Where construction is allowed, heights and density are limited. Result: land takes a huge slice of the final price.

The second enemy is time. Converting land into housing takes between 10 and 15 years, and there are worse cases. In Seville, according to a participant citing a talk by the urban management office, the first papers to urbanize Palmas Altas entered urban planning in 2007 and it is only now that the first tenants can move in, after environmental assessments, sectoral reports and new rounds of everything. For the developer, fifteen years with immobilized capital is not a 20% return: it is a roulette.

Developers deliberately restrict supply

There is a third factor not appearing in the balances: strategy. Those with finished housing or land are in no hurry to flood the market. In Los Berrocales there are 17 ongoing projects with 1,776 housing units, of which twelve buildings are free-price. According to sector sources cited in the debate, units are released in phases to avoid undermining their own prices.

It is not just a casual impression: a real estate professional from northwest Madrid cited in the debate claims he makes more money selling his land portfolio than building, and that in some recent completed developments the margin has vanished, with losses in one of them. Behind this is an easy calculation: if the land business pays better than the brick business, capital does what is logical.

Without credit and with bare hands

The blow that still lingers, according to several participants, is from 2008. Then developer credit collapsed, much more than individual mortgages, and entities never again lent with the same enthusiasm. Today, developers rely on their own resources and need a high level of off-plan pre-sales — selling before building — for a bank to open its purse. Operating this way is expensive: you immobilize capital for a long time and forego other investments.

Added to this is that, according to a forum poster, building now costs twice as much as in 2008, due to materials, energy regulations and new requirements: ventilated facades, insulation, air source heat pumps, green spaces, garages. And there is a shortage of workers. A forum poster notes that in his area, they ask for 35 euros per hour for bricklayers, the average age in the sector exceeds 45 years and there is no succession. Prefabricated construction emerges as an alternative, but depends on the land, which remains the bottleneck.

Why is protected housing barely built?

Because it does not make money. According to some participants, there are already urbanized plots in developments like Los Berrocales that still have no developer willing to buy them. Those who can choose prefer to sell free-price housing with a short margin rather than dedicate four or five years to an operation with a ridiculous return. The few active assets move in renovations, commercial premises and public contracts, where money is closer.

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Key data from the report

• Housing units built: a little over 2.5 per 1,000 inhabitants, compared to the 4 reference.
• Estimated accumulated deficit: between 700,000 and 800,000 housing units.
• Time to convert land into housing: between 10 and 15 years.
• Los Berrocales: 17 ongoing projects, 1,776 housing units, 12 free-price buildings.
• Labor force: a forum poster notes that in his area they ask for 35 euros per hour for bricklayers and the average age in the sector exceeds 45 years.