Spanish housing shortage: why apartment prices keep rising

New construction scarcity and high demand: why apartment prices keep rising

According to a new building permit shared in the thread, an apartment with garage on the Castellón coast costs €314,000 before the first wall is built: €117,000 just for rights and €197,000 estimated for construction. Without a garage, the bill drops to €277,000. This breakdown summarizes the prevailing diagnosis: the problem is not speculation on existing stock, but the lack of new construction. With interest rates trending downward and demand concentrated in a few cities, the debate centers on whether there is a housing bubble and how long prices will continue to rise.

New building permits dropped from around 885,000 in 2006 to 108,000 in 2023. Less than one-eighth. This decline is not due to excess housing, but to fewer projects, less available land, and greater uncertainty at every stage of the chain. While supply shrinks, demand concentrates in Madrid, Barcelona, Seville, Bilbao, and Valencia.

Why is so little housing being built in Spain?

Because available land has become more expensive, processing times are endless, and financing has become selective. A two-bedroom new apartment in Madrid exceeds €300,000 without taxes, and in many cases, far from a metro or commuter train line. Add material costs, a lack of specialized labor, and municipal licenses: each chapter adds months and euros.

There is another bottleneck cited persistently. One participant notes that banks do not lend to developers without sufficient pre-sales, and pre-sales do not arrive if solvent demand is scarce. It is a self-reinforcing cycle. This is compounded by regulatory factors recalled by another participant: in Barcelona, the obligation to allocate 30% of new construction to social housing coincided, according to him, with the practical disappearance of new developments in the city.

2006 vs. today: why this market differs from 2008

In 2006, Spain permitted more housing than Germany, France, and Italy combined. That crash left entire developments unsold and triggered brutal price adjustments. The current picture is different: housing prices rise sharply in a few key areas and remain flat or fall elsewhere. In Badajoz, according to data cited by a participant, the square meter price dropped from €1,236 in 2008 to €976, a 22% decrease.

The second change is financing. Two decades ago, almost any paycheck could secure a mortgage; today, many operations are paid in cash, and loans granted come with strict guarantees. Without easy credit and an excess of supply, the classic mechanism of a bubble burst finds no trigger. Hence, many analyses conclude there is no bubble, but a rigid market on the supply side.

Will it burst or will prices keep rising?

It depends on who you ask, and consensus breaks down there. One group argues there is no bubble because everything listed sells at market price, with no line of desperate sellers. Another responds that the bubble is the system itself: when money circulates, much of it ends up in real estate. A third school warns that past charts guarantee nothing about the future.

The most repeated prediction places the turning point at late 2027. Before then, they say, there will be no shift: not with falling interest rates, nor with strangled new construction. The harshest scenarios point to an external trigger—high unemployment, runaway inflation, or a credit freeze—as the only lever capable of moving the market.

Another variable appearing in almost all projections is demographics. It is argued that continuous migrant population influx and the formation of new households sustain demand in employment-rich cities, and this flow explains much of the pressure on rents. Conversely, a warning notes that migration flows depend on policy and economic conditions, and a shift in Europe would alter the calculation. Moreover, the purchasing power of newcomers without roots is limited, pushing them to share housing rather than buy.

Stressed areas, rent caps, and foreign purchases

Measures already on the table target demand, not supply. Catalonia declared stressed areas, set price limits, and extended regulations to seasonal and room rentals, with a threshold of five properties to be considered a major landlord. Parallel to this, there are calls to ban purchases by non-resident foreigners, as other countries already do.

Owners warn the risk is the opposite: if renting no longer covers costs and regulation adds legal uncertainty, what disappears is rental housing. Scarcity worsens exactly where it is most needed. The result is seen in overcrowded housing and the squalor already emerging in neighborhoods with the highest demand pressure.

What can be done to lower housing prices?

The repeated recipes are three: a public housing stock large enough to influence the market, liberalize land, and cut the regulatory maze that inflates each development. Two uncomfortable measures are added: remove rent caps and strengthen landlords' legal security against defaults and squatting.

None is free, and none is quick. Building a public stock requires money and land; liberalizing clashes with territorial planning; and touching rent caps unleashes a political storm. The most repeated objection to the entire package is simple: without more available housing, any measure moves prices from one place to another, but does not lower them.

With 108,000 annual permits and demand that does not wane in major cities, the adjustment must come on the supply side. And supply today is far behind what existed in 2006.