Turns out all that’s needed to halt a property bubble is a constitutional crisis of epic proportions.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Spain’s breakaway region, Catalonia, is riven in two and as unruly as ever. Just about the only thing the latest round of elections accomplished was to confirm just how divided the region is.
Catalonia’s failed bid for independence has left behind a stinking economic hangover. None of the lofty promises made by the separatist forces have materialized. Four senior politicians and political activists remain in jail. The European Commission has roundly rejected any possibility of an independent Catalonia remaining in the EU. Yet enough people voted for pro-independence parties to grant them the slimmest of majorities in the region’s parliament. And that’s enough to ensure that nothing much changes.
But one thing has changed: The rampant political uncertainty has tempered global appetite for real estate assets in the region’s capital, Barcelona. Back in July, when we last reported on the housing bubble, it looked like this:
In June 2017, the median home price in Barcelona soared 21.7% year-over-year, to €3,094 per square meter (ca. $350 per square foot), with double-digit increases across all of the city’s districts. In the city’s old town — ground zero for the tourist industry — the median price skyrocketed 35%. Property speculators, domestic and foreign, were piling in too. And as landlords focused on meeting the much more profitable needs of short-term visitors, rents soared 50% between 2013 and mid-2017.
Then, on October 1, the referendum happened and all hell broke loose. Since then, demand for real estate in Barcelona has waned, with the result that property prices fell 1.7% in the fourth quarter from the third quarter, according to Tinsa, the biggest quarterly decline since Spain’s recession ended in 2013.
The irony is that Barcelona’s City Council tried just about everything it can to dampen international demand for local real estate, from fining sharing platforms like Airbnb for featuring unlisted tourist apartments on their platforms to sanctioning local banks for refusing to sell or rent out unoccupied bank-owned properties, but to little avail, largely because Spanish national courts keep annulling the legislation it passes.
Now, it turns out that all that was needed to halt the property bubble was a constitutional crisis of epic proportions. But even that has barely put a dent in the relentless surge in the price of rents in Barcelona.
The city is already the most expensive in Spain for renting with an average price of almost €19 per square meter, compared to a national average of €7.5. In 2013, when Spain’s economy began its recovery from the 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.
This price boom is happening in a city where salaries have all but stagnated since the crisis. 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. In Spain ten years ago, “mileurista” — a term to denote someone earning €1,000 a month — was coined to highlight the plight of young workers with low-paid jobs that could never dream of owning their own flat. Today, with a youth unemployment rate of just under 40%, becoming a “milleurista” has become something to aspire to while renting a flat in Barcelona — or even a room in a flat — has become an impossible dream for many young workers.
To make matters worse, the steaming hot property markets in Barcelona and Madrid are now so stacked in the seller’s favor that tenants are increasingly been made to bear the full cost of agency fees, which can often run into four figures, despite the fact that it’s the landlords who hire the agency’s services in the first place and who ultimately benefit financially from the deal.
To discuss ways of protecting tenants from these kinds of abuses, housing representatives from Barcelona city council recently met up with representatives from the councils of Lisbon and New York, two cities that have also witnessed huge rental booms in recent years. The result was a joint manifesto calling on the cities’ respective national governments to grant them more power to control rents to put a stop to what they call “excessive” house prices.
Barcelona City Council also dispatched representatives to Paris and Berlin to study the impact of recent legislation aimed at curbing price rises in the rental markets. Berlin, for example, is one of a number of German cities to have applied new federal laws that forbid landlords from hiking rents by more than 10% of what they were in the previous contract. In Berlin, rental contracts are valid for ten years.
Applying similar such measures in Barcelona is going to be very hard, though, for the simple reason that Madrid is unlikely to permit them. Every time Barcelona City Council or Catalonia’s regional government has tried to introduce new laws to curtail speculation in the housing market and protect tenants from evictions, abuse, or excessive rent increases, the central government has appealed them and Spain’s Supreme Court has annulled them. At the end of the day, it all comes down to one thing, political autonomy, and right now Catalonia has a lot less of that than it has had for a long time. By Don Quijones.
Uncertainty, threats, and counter-threats. Read… Catalonia’s Post-“Independence” Economic Hangover Sets In
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