Spain's Rental Crisis: What Went Wrong?

Spain promoted renting as an alternative to buying, but a lack of supply and rising prices have turned it into a major problem, especially for young people.

For years, renting was pushed as a way to make housing more accessible, highlighting its economic, social, and labor advantages. The goal was to boost geographic mobility, reduce household debt, and offer flexibility. A 2009 law aimed to increase renting's share of the housing market from just 11% to closer to the European average of 40%.

This goal has been partially met. According to Spain's National Statistics Institute (INE), by 2025, 20.2% of households rented, up from 13.9% in 2007. Homeownership fell to 73.3%. However, this success brought an unintended consequence: renting became a problem.

## The Estimulante ilegal of Change, A Key Factor

Economists like José García Montalvo of Pompeu Fabra University point to the "estimulante ilegal" of this shift as a key reason for the downturn. The real push towards renting began after the 2008 financial crisis. Tighter mortgage credit left many households, especially those with lower incomes and savings, unable to buy. The need for housing remained, and much of that demand shifted to the rental market. The issue is that Spain faced this rapid demand increase without sufficient social housing and with limited private construction. "There's no public cushion here," Montalvo explains, a clear disadvantage compared to other European countries.

In the trinc years, the rise in renting among young people was seen as a cultural shift. However, the reality was less voluntary: a generation was emerging that simply could no longer afford to buy a home.

## The Turning Point: Growing Demand and Stagnant Supply

Starting in 2015, the Bank of Spain notes a sustained increase in average rental prices, particularly in major cities. This turning point coincided with economic recovery and, from 2016, a demographic rebound driven largely by immigration, which increased housing demand.

Sociologist Jesús Leal highlights that several factors converged to drive up demand from that year: increased immigration, improved economic outlooks, and pent-up demand released after the crisis years. This exerted extreme and constant pressure on the rental market until 2019, just before the pandemic. Adding to this pressure was a supply that barely kept pace. Construction was recovering but far from pre-crisis levels. In 2019, only 106,266 new homes were permitted, an eighth of the over 865,000 in 2006. Meanwhile, net migration had quintupled since 2016, exceeding 454,000 people in 2019, the pre-pandemic peak.

During those years, rents weren't just rising; Spain already stood out in Europe for the economic burden on tenants. In 2020, 35.9% of those renting at market prices spent over 40% of their disposable income on housing costs, compared to the EU average of 25.8%, according to Eurostat.

## The Pandemic, An Accelerator of the Housing Crisis

After the pandemic, the gap between incomes and housing costs widened further. Between 2021 and 2024, offered salaries grew by 7.4%, while rental prices increased by 29.4%, almost four times faster, according to a study by InfoJobs and Fotocasa. The result is evident in today's market. A recent OCU study found only 13 homes under €700 per month in Madrid and just 9 in all of Barcelona. Even raising the budget to €1,000, the number of available homes was limited: 543 in Madrid and 150 in Barcelona, of which 84% in the latter were temporary rentals. OCU concludes that someone earning €2,000 net per month struggles to rent alone without incurring considerable economic effort.

Raymond Torres, Director of Economic Analysis at Funcas, speaks of an acceleration point after the pandemic, triggering the major housing crisis. Between 2021 and 2022, the number of new households significantly exceeded the number of new homes built, amid a reduction in vacant housing stock. This excess demand drove up prices, both for purchase and rent, beyond household incomes. This period coincided with a second migratory wave: in 2022, net migration surged to around 727,000 people, according to INE.

"The increase in rental properties has been occupied largely by this foreign population, to which we must add those occupying tourist or secondary homes temporarily or continuously," considers Jesús Leal. "These two population groups have caused a huge increase in demand for rental housing in years when access to renting for native Spaniards also increased, but by a much smaller amount."

## Increasing Supply, The Only Solution?

For Montalvo, the solution isn't to reverse the trend and promote homeownership again. Incentivizing purchases in a market with insufficient supply would only fuel prices further. "No measure to increase demand addresses the root of the problem," he argues. The goal must be to increase housing supply, "for rent, and above all, affordable and social housing." This approach clashes with recent proposals aimed at stimulating homeownership, such as tax breaks for young people announced by PP leader Alberto Núñez Feijóo.

In this context, the difficulty in accessing decent rental housing has become a central concern for many citizens, especially young people. Policies aimed at balancing supply and demand, and ensuring affordability, are more urgent than ever.