Taxpayer-funded subsidies to benefit banks, real estate agencies, construction companies, PE firms, and landlords.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
After spending the last few years groggily getting back onto its feet following the collapse of one of the most spectacular — and destructive — real estate bubbles of this century, Spain’s economy is once again being primed for another property boom.
In the last quarter prices registered a year-on-year rise of 4.5%. Rents are also surging, 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, according to a new study by the online real estate market place Idealista. In Madrid, rents have risen on average by 27% since 2013; in Barcelona they’ve surged over 50%.
This trend is being driven by two main factors: the recent explosion in tourist rentals [read: Is Barcelona’s Crazy Tourist Boom Too Much of a Good Thing?], as well as a general shift in consumer behavior as more and more people choose (or have little choice but) to rent rather than buy property.
While rents soar, Spain’s mortgage market, the biggest source of profits for the nation’s banks, is also showing signs of life. In 2016 the number of mortgages issued rose by just over 10% to 281,328. But that’s merely a fraction of the 1,324,522 mortgages signed in 2006, just before the bubble burst.
The banks would like nothing better than to issue more and bigger mortgages, but even with interest rates at their lowest point in history, most people either can’t afford the current prices or don’t want to take on more debt.
Spain’s fragile coalition government is determined to change that. In its latest budget announcement it revealed plans to set aside billions of euros in 2018 for publicly funded mortgage subsidies. Young people under the age of 35 who are earning gross incomes of less than €1,600 per month will be eligible for payments of up to €10,800 to help them buy their first home. There will also be rental subsidies for people under the age of 35, for up to half the price of the rent.
The government also unveiled subsidies to help the most vulnerable among the country’s elderly to pay their rent and utility bills, as well as provide much-needed funds for evicted families, many of whom still owe the banks tens of thousands of euros for the insanely over-priced houses they no longer own.
But the prime target of this initiative is the country’s downtrodden youth, which after years of internal devaluation and depression-era unemployment levels has been priced out of both the mortgage and renting markets.
In Spain today there are roughly two million fewer people under the age of 40 in full-time employment than there were in 2006, due to a variety of factors: demographics (i.e. there are now fewer people under the age of 40), rampant job destruction, and the mass exodus of young Spaniards to greener pastures. Even for many of those that chose to stay behind and actually found work, the reality is still alarmingly bleak: according to the Spanish daily ABC, of the 1.7 million job contracts signed in December last year, over 92% were for temporary jobs.
Since the Financial Crisis, precarity has become the ubiquitous reality for most young Spaniards. Many end up earning so little in jobs that offer scant, if any, financial security that they have little choice but to stay at home with their parents, sometimes well into their thirties. According to data released this week by Eurostat, the average Spaniard does not move out of the family residence until they are 29 years old.
If Spain’s new, dwindling generation of “workers” cannot afford to leave home, who will buy or rent the properties sitting idle on the balance sheets of the banks, “bad bank” Sareb, and the global private equity firms that piled into the market a few years ago? And the banks cannot exactly dump all the properties they own onto the market at one time, since it would push prices down, leading to balance sheet mayhem, though it would make prices and rents more affordable and would thus help solve the affordability issue.
Which is where the government comes in. It will spend an unspecified sum of taxpayer funds on a massive subsidies program aimed ostensibly at helping young workers rent or buy a new home. Instead of using that money to expand the country’s paltry stock of rented social housing, which makes up just 2% of all residential property, compared with 18% in Britain and 17% in France, the government will essentially transfer funds from the program’s initial recipients — i.e. the new tenants or home owners — to its intended beneficiaries: the banks, real estate agencies, construction companies, private equity firms, and other private landlords.
If the scheme works, it’s almost certain to provide short-term profits for the aforementioned interest groups while further ginning up house prices, with the result that many taxpayers over the age of 35 and under the age of 65 will get to lose out on two counts: first, they must cough up the funds to subsidize the scheme, and second, if they rent their own home, they get to see the price of that rent soar.
The scheme will also boost Spain’s public debt, which has already ballooned from 39% of GDP in 2008 to 99.4% of GDP in 2016, and it will just keep growing until the day it can’t. By Don Quijones.
But concerning Spain’s banks, Investment bank Mediobanca warns of “clear risk of contagion.” Read… Just How Safe is Spain’s Banking System?
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If the Spanish government really wanted affordable rental and housing stock for Spanish youth they would:
Immediately deport every illegal, migrant and refugee
Stop all subsidies and guarantees to the housing market financiers
Make banks eat their bad loans
Throw bankers in jail for fraud
Leave the euro
Lower all taxes on landlords. Allow profit
Lower taxes on housing capital gains. Allow profit
The free market will take care of the rest.
Spain would have so much affordable housing that Spanish teenagers would be moving out on their own.
“Lower all taxes on landlords. Allow profit
Lower taxes on housing capital gains. Allow profit”
They already profit. That’s why they get taxed. Duh. Typical rentier.
“”Immediately deport every illegal, migrant and refugee”
Deport them where? Do you want them to get bombed and die quickly, or starve and die slowly? Your choice. Be sure to break up the families to maximize misery.
No more tax breaks for rentiers, speculators and free-lunchers. What we need is to tax away this damn overhead that crowds-out the real economy.
They just have to unload the ‘bad bank’ tens of thousands of properties and suddenly all these problems will go away
“taxpayers over the age of 35 and under the age of 65 will get to lose out on two counts”
There ya go: reward the rentiers at the expense of their victims. La monde comme il va.
In 19th century melodramas Dudley saves Nell after Snidely ties her to the tracks, but in the real world Snidely’s gang ambushes Dudley and Nell gets smushed. Happens all the time.
The world is owned and operated by homicidal maniacs hopelessly addicted to avarice, so there is every reason to expect civilization is locked into a destiny where it maximizes returns by exterminating itself, and do it the hard way.
No subtext this time, sorry.
Look at the ECB. Its printing presses are running full tilt. It is creating a property bubble here in Germany too. People’s money is not safe in the bank so it is flowing to real estate.
The ECB is achieving the desired devaluation/inflation with their policies.
The central banks are enriching their oligarch patrons at the expense of everyone else.
All banks create money out of debt. It does not exist before the debt is arranged. The property market brings in the money to the system out of thin air. PLEASE understand this. After the money is created by the banks interest goes on and on and on until the debt is cleared. The more money that is created the more there is for the banker. Bankers are only interested in the property market as the game brings rich rewards when the public pay for their mistakes.
Do we really need to bring up the migrant and refugees thing here? Aren’t in fact flowing migrants part (and an effect of) the free market as well?
Spain is a banana republic that votes for corrupt politicians who can’t speak any language but Castellano, rigs the housing market in favor of banks, the public works market in favour of friends, the energetic market against renewables and self production, ignores massive tax fraud in soccer clubs and cannot tolerate referendums at any cost. Its only geopolitical ambition is to “recover” Gibraltar, which it “owned” for only a brief period. Spain is a joke of a country.
“Aren’t in fact flowing migrants part (and an effect of) the free market as well?”
Sort of. Collateral damage in the corporate wars, actually, and not always a convenient labor pool. Perhaps strangely, “pro-lifers” consider them vermin, and not people, even when they can be profitably exploited.
People are disposable, especially when surpluses result in avoidable carrying costs. You know how it is.
Let’s see a country with massive unemployment of their own nationals yet a huge flow of immigrants into the country and again at the same time many young people leaving Spain because they can’t find work.
What a screwed up situation – just like the USA in many ways.
Maybe if Spain, like most other western countries, started to enforce the rule of law so everyone knew that over the next ten, twenty, or thirty years that they knew what the playing field was like you’d have a base from which to build and repair the country.
Illegal, see that word, “illegal” immigrants are illegal.
When people start to wake up to that fact and start enforcing laws in that area other problems can be solved. A country has no legal obligation to feed, house, care for, and educate people that are in their country illegally.
Of course, all those people that advocate for illegals should step up, house them in their own homes, sponsor them, pay them the legal minimum wage for any work done…………….(Oh, sorry I forgot about the left wing hypocrite, NIMBY or NIMH syndrome) and when found to be breaking the law in respect to aiding and abetting illegal activities should be fined and even jailed.
That includes people as well as corporations.
Are you sure it’s not massive landing of Martians that is causing the lost of jobs and the housing bubble? I heard Area 51 staff are mostly Martians.
Between 2001 and 2015 Spain’s population dramatically increased from 40 to well over 46 million. In 2016 there was a very slight downtick (-0.5%), chiefly due to emigration, but the trend for the XXI century is still towards very strong population growth.
This massive increase in population did not result in a boom in RE prices: these people are usually the poorest of the poor, immigrants flowing into Spain to feed her “booming” agribusiness in exactly the same way they feed Italy’s: Petain and Eisenhower famously said you cannot fight machines with men. Spanish and Italian latifondistas are doing just that, fighting France’s massively mechanized agriculture with slave labor. And piles of subsidies from Brussels, of course.
Dirt poor immigrants cannot buy houses. They do not qualify for mortgages and do not own hot money, like those flocking to Australia, Canada and the US.
In short if one needs to reflate a housing bubble, he needs to look elsewhere.
Spain’s stupendous housing bubble (and the allied, albeit much smaller, Portuguese one) originally started with the justification wealthy retirees from Northern Europe would all scramble to buy a retirement/vacation house. Then it acquired a life of its own.
There was absolutely nothing propping up this bubble: no hot Asian money, no artificially constricted supply (building licenses were granted liberally), nothing.
A Wolf Street commentator once wrote the Australian government wants an economy built around digging rocks out of the ground and flipping houses. Spain left out the digging part and just built houses, possibly hoping sometime in the future valuations would support Anglosphere-style financial wizardry based on home equity.
Doing this again is bound to end in tears, especially now that the ECB has shot every arrow in its quiver and that the country is always on the brink of having no government due to political fragmentation.
Speaking of which… I cannot but read in this proposal an attempt by the ruling PP to rebuild its old crumbling client system.
Young people throughout Europe are mostly uninterested in politics, as the extremely high non-partecipation rates say, and when they do partecipate they tend to lean towards non-mainstream parties, such as Italy’s M5S and Spain’s Podemos. Which, we are daily reminded, are very dangerous. Why? We are not exactly told, but financial markets seem to be terrified ofthem and financial markets are the only thing that matters these days.
At the last elections it was calling out all their old clients that allowed the PP to have that tiny little hedge, but that hedge is dulling rapidly. The PP, very much like the PD (ex-Communists) in Italy and the Socialists in France need new clients, people tied hands and feet to them who will fufill what Massimo D’Alema set as a defining factor for a modern-day rotten borough: “They will vote for a donkey if said donkey is our candidate”.
Well said, MC.
MC – thanks for your amazingly well written and reasoned response. It was a delight to read. One interesting thing though, if you don’t mind: you used the word “partecipate” twice – so no typo. It suggests that you have Italian roots, but can write flawlessly in English. Or?
Well, as a young spanish worker I know what I have to do given these facts: I’d better start learning german.
Only one thing can save this country, and it was invented by the french long time ago (what could it be?).
Spaniards voted for the corrupt “center-right” and socialist administrations that brought about these current messes. These fraudsters and finance sector errand boys didn’t just rise up out of the ground.
Does it fall from on high and stop suddenly?
“A culture that does not grasp the vital interplay between morality and power, which mistakes management techniques for wisdom, and fails to understand that the measure of a civilization is its compassion, not its speed or ability to consume, condemns itself to death.”
“rapid exodus to greener pastures”
Where is this place, not on planet earth, that’s for certain.
It’s a Barnum & Bailey show, clowns & all, one big gamblers fairy tale.
How can the banks ever raise interest rates, in light of this madness, the whole world will have to declare bankruptcy.