The demographic evolution in Spain places immigration as the main driver in household formation and the demand for housing.
This was the opinion of Juan Antonio Módenes Cabrerizo, PhD in Geography, lecturer in the Department of Geography at the Autonomous University of Barcelona (UAB) and associate researcher at the Centre for Demographic Studies, during a conference held at the Madrid Real Estate Exhibition (SIMA).
According to Módenes, "the basis of household formation is the population pyramid," which has been inverted in recent decades. In 1990, the Spanish population pyramid was triangular as there were more young people ("household formation leaders") than older people ("household dissolution leaders"). According to the researcher, "there was an imbalance between the household formation and dissolution and a net demand, which feeds residential demand".
But, as the years go by, the demographic evolution is losing its pyramid shape. "This structural, permanent and inertial imbalance is being lost. We now have fewer young and more old people," insists Módenes. According to the expert, the imbalance between the two flows is reducing, showing a trend towards a zero balance, or even a negative balance in net household formation.
Considering what the researcher describes as "the endogenous basis of the Spanish population", there would be no need to build homes in Spain, as thousands of properties would become vacant each year due to death which could be re-occupied by new households. However, this is where migration comes into play, as it is "an exogenous factor to the Spanish population that alters fundamental demographic findings".
Módenes notes that the arrival of immigrants to Spain peaked in 2006, with a net balance of more than 700,000 people (the result of outflows and inflows), coinciding with the peak of the real estate cycle. This is why the Geography PhD and researcher states that "the real estate boom was not only speculative but also demographic in nature".
The trend of attracting migration stopped in 2007/2008, at the height of the real estate bubble, and reached a minimum between 2012 and 2014, when there was a net outflow of migrants. As economic recovery gathered momentum a decade ago, immigration began to return. Already in 2019, the balance was positive with half a million net inflows, and the figure has continued to rise to 727,000 net inflows in 2022.
Although 2023 official data have not yet been published, Módenes estimates that the positive balance could be between 600,000 and 700,000 people, in line with previous years. And if that figure is grouped into three-person households, we would be talking about the formation of 200,000-250,000 new households a year in need of housing. This is equivalent to providing a residential solution for the entire province of Jaén in a single year.
"If this continues, we will accumulate years in which as a country we have to offer more than 200,000 homes a year," says the Geography PhD and researcher. He insists that "we have an economic and social system that feeds on migrants. We need immigration and we have to offer housing. As a system, we must provide housing for the households that are formed".
Furthermore, the expert pointed out that, although the evolution of the Spanish population tends to be zero (given that the same number of households are formed as are dissolved due to death), the annual demand for housing could be higher than the 200,000 homes per year and approach the 250,000 units that the real estate sector tends to indicate.
The reason for this is that not all homes that become empty due to death are inhabited by new households (be they Spanish or migrants), as they are usually old-fashioned and are not of the same quality as more modern properties. Other factors may also play a role, such as the fact that these properties are destined for other options such as tourist rentals, or the latent demand due to young people leaving home later.
According to a Bank of Spain study, 66% of Spaniards aged between 18 and 34 had not left home in 2022. Spain's figures are above the European Union average (where less than half of young people were living in the family home in 2022) and are the second worst among the major European economies. Only Italy has a worse result (almost 70%, compared to 30% in Germany or 42-43% in France).
"Therefore, the amount of housing that needs to be built could be even more," concludes the Geography PhD and researcher.
The key is to increase the housing supply
The real estate sector has been insisting for years on the need to increase the housing supply in Spain to satisfy demand.
One of the latest voices to warn of the imbalance that exists in the market is the Spanish Institute of Analysts (IEA), which stresses that, even though the population growth in Spain is negative, the arrival of foreigners in the country shows a positive figure for net home formation. Tensions have worsened since 2020, especially in those areas where work is centralised or coastal areas, such as Madrid, Catalonia, Andalusia, Valencia and the Canary Islands, which account for more than 70% of the new jobs created in the country.
That is why they claim that the key to solving the problem is to increase supply through public-private collaboration, mobilising land and reducing bureaucratic obstacles, and believe that measures such as abolishing purchase taxes or introducing rent deductions must be preceded by a stock increase. If this is done in reverse, it could generate even more imbalance.
Migration drives UK rent to record levels
An example of the pressure migration is putting on the housing market can be seen in the UK. The country's rent crisis is being exacerbated by record net migration, as the housing supply fails to keep pace with population growth. The number of rental households made up of new migrants has risen from around 80,000 a year in the 2010s to more than 200,000 in recent years, according to Capital Economics analysis.
The findings suggest that the UK economy's dependence on foreign workers and the lack of new housing construction are clashing, exacerbating the cost of living crisis for renters.
"High net immigration has led to a sharp increase in demand for rental housing, pushing up the cost of rent compared to the average wage," Andrew Wishart, senior property economist at Capital Economics, told Bloomberg news outlet.
Net immigration has soared in the UK since the pandemic, reaching a record 745,000 people in 2022. It has been driven by international students, healthcare workers and migrants from Hong Kong and Ukraine.
Capital Economics says rental demand has also been driven by aspiring homeowners having to rent for longer due to high mortgage rates. However, the firm adds that even if all these prospective buyers were to rent instead, the resulting increase in rental demand would be much smaller than that of migration.
Wishart, speaking to Bloomberg, warned that many low-income households are being priced out of the rental market, with waiting lists for social housing and an increase in the number of homeless people.