When locals can’t afford to live there anymore.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Spain is in the grip of a property boom. Whereas the last bubble was driven largely by the rampant construction and sale of new homes, with the country at one point accounting for more housing starts than Germany, France, Britain and Italy combined, the focal point of the new boom is the smaller but fast-growing rental apartment market.
Spain has traditionally been a country of home-owners, with an average ownership rate of 78.5%, 10 percentage points above the EU average. But things are changing.
“The concept of owning a home in Spain was almost religious, but that’s changed for an entire generation of young people who have seen people losing their homes, (their house) prices dropping, and losing access to credit,” said Fernando Encinar, co-founder and head of research at the online real estate marketplace Idealista. “That has made renting a more attractive option, especially in big cities such as Madrid and Barcelona.”
A recent study by Idealista showed that rents are on the rise across many parts of Spain, though the country is still home to over half a million vacant properties. The cost of renting in Madrid and Barcelona, which between them account for 16% of those vacant properties, has reached historic highs. In Madrid, rents have risen on average by 27% since 2013, and in Barcelona they’ve surged over 50%, with the result that more and more local people are getting priced out of the market.
In 2013, when the economy began its incipient recovery from the last burst property bubble, just 8% of rental properties in Barcelona were priced above €1,500 a month, a sum that is prohibitively expensive for most locals; now over a third are.
One of the main reasons for the soaring prices is Barcelona’s unending tourist boom. With far larger profits to be made in the short-term tourist rental market, property owners and developers are shifting their focus away from long-term rentals. Short-term property speculators, domestic and foreign, are piling in, too. It’s simple math. According to a British real estate platform, Nested, renting a property on Airbnb can be as much as 256% more profitable than a traditional lease.
Recent government regulation has hardly helped matters. In 2013 Spain’s central government reduced the minimum duration of rental contracts from five years to three. This happened just as global banks and private equity funds were piling in to the market to pick up the juiciest real estate assets being auctioned off by Spain’s publicly subsidized bad bank, Sareb. They included huge batches of social housing, despite the fact that Spain has one of the smallest public rental housing stocks in Europe. In next to no time, contracts were terminated and rents were hiked.
Empty apartments, buildings or even entire towns are a lingering legacy of Spain’s financial crisis. At one point not that long ago, the country was home to an estimated 3.4 million empty properties. Even now, real estate vacancy remains a problem. From my apartment window, in central Barcelona, I can see two blocks of flats that have been empty for years. Another block, also empty but occupied by squatters (a common phenomenon in this city), was recently pulled down by the City Council.
Another reason why rents are soaring in Barcelona is the city’s rise in popularity as a home base for the well-heeled, footloose global professional. As El País recently reported, hordes of global professionals are being seduced by the cost and quality of life on offer in the Catalan capital.
“The quality of life offered by Barcelona is unbeatable,” says Steve Cahill, a British expat with several international projects on the go. “It is a safe city, there is talent, very good infrastructure and communications, a really diverse cultural scene, the food is fantastic, you’ve got the sea and the mountains nearby, and the sun is always shining. It’s the perfect combination.” And the rent, while expensive to Spaniards, still feels affordable to foreigners.
Propelled largely by global forces, the onward march of gentrification continues. With it comes a potpourri of pros (the renovation of run-down neighborhoods, opportunities for local entrepreneurs and broader cultural diversity) and cons (loss of local character, soaring rents and prices, and the ousting of local people from their homes and neighborhoods).
It is now virtually impossible to find an apartment for under €800 a month, even though a third of Barcelona’s local population earns less than that amount.
But the local resistance is rising. Last week the city saw the launch of its first ever tenants union, modeled on the associations already in existence in other European countries. The city council – which is run by the leftist mayor Ada Colau, herself a former housing activist – has applauded the initiative, describing it as “in sync” with her own policies, which include occasionally fining banks hundreds of thousands of euros for keeping properties they own empty.
The union’s stated goal is to serve as a “voice to defend housing as a right in the face of those who consider it merchandise.” The group says it will defend rent control and longer leases, and offer its members technical and legal advice. It is not ruling out a city-wide rental strike as happened in Barcelona in the tumultuous 1930s.
In a potent sign of things to come, Madrid, where rents are forecast to rise even faster than Barcelona this year, launched its own tenants union on Friday. With new chapters expected to spring up elsewhere, Spain’s younger citizens are sending a clear signal: if the authorities continue to court property speculators to the exclusion of local citizens, a backlash is on its way. By Don Quijones.
A new set of taxpayer-funded housing subsidies are planned to benefit banks, real estate agencies, construction companies, PE firms, and landlords. Read… Spain’s Government Presses Property-Bubble Rewind Button