Why Aren't More Homes Being Built as Prices Keep Rising?
Despite soaring prices, new construction lags. Factors include expensive land, slow permits, and labor shortages, creating a supply-demand imbalance.
English · Original discussion in Spanish · Published
Housing Prices Soar While Construction Stalls
How much does the price of an apartment need to increase for someone to decide to build more? The uncomfortable answer circulating in economic forums these days is: it doesn't matter. In Spain, at most 100,000 homes are built per year while discussions rage about whether a million people are arriving or not. The demand pressure finds no compensating supply, and prices do what they know how to do.
Why Developers Aren't Building
Before laying a single brick, one must buy overvalued developable land, pay fees, battle with urban planning and environmental agencies, and navigate a score of bureaucratic hurdles. Compliance with local, regional, state, and European regulations is required, and financing must be secured from a bank that consults the ECB before signing. Every delay eats into the profit margin. The easy answer in the debate – 'the problem is developers who don't want to build' – falls apart on its own: no one stops making money by choice.
The most basic element is missing: the workers to lay the bricks. There are no construction workers, or not at the offered wages, summed up in a message with the idea of getting paid in Coyote trading cards. Without labor, any housing plan remains just a PowerPoint presentation.
How Many Homes and How Many People Arrive
The figures involved are dizzying: 10 m² per person, 100 m² apartments with ten tenants, cited cases of thirteen people in a single apartment, new developments in Bilbao neighborhoods starting from 430,000 euros. And the memory of 2012: what sells today in days for €250,000 found no buyer for €125,000.
Some argue that building extensively didn't lower prices twenty years ago and that demand should be reduced, not supply increased; that Madrid or Valencia shouldn't become Hong Kong. Countering this is the stubborn fact: each year, more people arrive than can fit into the completed apartments.
With these ingredients, housing will fix itself. Like all the other times.
How much does the price of an apartment need to increase for someone to decide to build more? The uncomfortable answer circulating in economic forums these days is: it doesn't matter. In Spain, at most 100,000 homes are built per year while discussions rage about whether a million people are arriving or not. The demand pressure finds no compensating supply, and prices do what they know how to do.
Why Developers Aren't Building
Before laying a single brick, one must buy overvalued developable land, pay fees, battle with urban planning and environmental agencies, and navigate a score of bureaucratic hurdles. Compliance with local, regional, state, and European regulations is required, and financing must be secured from a bank that consults the ECB before signing. Every delay eats into the profit margin. The easy answer in the debate – 'the problem is developers who don't want to build' – falls apart on its own: no one stops making money by choice.
The most basic element is missing: the workers to lay the bricks. There are no construction workers, or not at the offered wages, summed up in a message with the idea of getting paid in Coyote trading cards. Without labor, any housing plan remains just a PowerPoint presentation.
How Many Homes and How Many People Arrive
The figures involved are dizzying: 10 m² per person, 100 m² apartments with ten tenants, cited cases of thirteen people in a single apartment, new developments in Bilbao neighborhoods starting from 430,000 euros. And the memory of 2012: what sells today in days for €250,000 found no buyer for €125,000.
Some argue that building extensively didn't lower prices twenty years ago and that demand should be reduced, not supply increased; that Madrid or Valencia shouldn't become Hong Kong. Countering this is the stubborn fact: each year, more people arrive than can fit into the completed apartments.
With these ingredients, housing will fix itself. Like all the other times.
Summary of a discussion on Burbuja.info - Foro de economía, actualidad y política., translated from Spanish and reviewed before publication. Read the full discussion (22 replies).
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