Spain's residential market: a lack of land and unmet demand

Yoko Correia Nishimiya on Unsplash

2 December 2024, 9:00

At the 11th Real Estate Forum organised by the Instituto de Empresa (IE), leading experts examined the challenges and opportunities facing Spain’s real estate market. The event gathered key figures from the sector, including Juan Manuel Acosta, Chief Information Officer (CIO) and director for Spain at Rockfield Real Estate; David Martínez, CEO of AEDAS Homes; and Alberto Valls, partner at Deloitte. Discussions centred on critical issues such as the housing supply shortage, capital deficit and structural challenges in a shifting economic and political landscape.

Alberto Valls opened the forum by highlighting the intense competition for capital in today’s real estate market. “Over the past two years, real estate investment in Europe has totalled approximately €160 billion, comparable to the average for 2008–2012, but with one significant difference: the market has now dried up,” Valls explained.

Valls also emphasised that the alternative investment sector, including infrastructure and private equity, is gaining traction due to its lower regulation and greater access to financing. However, the real estate market is still undergoing a structural transformation, both in terms of property usage and investment sources, with a significant shortage of "core" capital.

Housing shortage: an urgent problem

David Martínez, CEO of AEDAS Homes, was forthright in stating that the current market situation is concerning, particularly regarding the supply of housing. "In Spain, 250,000 homes are needed each year, and this figure will remain constant for the next 15 years. However, the sector is only constructing between 80,000 and 100,000 homes annually, barely a third of what is required," Martínez explained. According to the Bank of Spain, the accumulated deficit stands at 600,000 homes, and the ability to increase production is limited by various structural and political factors.

Martínez identified three key obstacles to increasing housing production: capital, construction capacity, and land availability. "Land is being consumed faster than it is being produced, and the administrative process for approving new developments is complex. Moreover, in 2007, there were 3.1 million workers in construction; today, there are only 1.4 million, with an average age of over 50," he explained.

The issue of capital is equally pressing. According to Martínez, developers need to provide 30% of the cost to build a house, which represents a significant investment that is challenging to secure in the current climate. "Doubling production would require an additional €90 billion, a sum that is not available in Spain, forcing us to seek foreign capital in an uncertain political environment," he warned.

Housing as infrastructure and the lack of regulatory stability

Alberto Valls put forward an innovative approach to tackle the issue, proposing that housing be considered as essential infrastructure. "Since 2013, property prices in major cities have tripled, reflecting a growing mismatch between supply and demand. The solution lies in developing more infrastructure, including social and affordable housing, while attracting the private sector through incentives and a stable regulatory framework," he argued.

In this context, Juan Manuel Acosta, CIO of Rockfield Real Estate, emphasised the importance of the "flex living" model, which offers faster and more flexible access to housing compared to traditional methods. However, Acosta criticised the lack of effective urban planning, stating, "We are facing a housing emergency, and we need drastic measures similar to those implemented during the Covid-19 health crisis."

Solutions and challenges for the future

Martínez emphasised that the primary issue is the lack of land, and once this challenge is addressed, the other factors will naturally fall into place. "The public sector must focus on facilitating the creation of developable land. If land is available, the private sector will find ways to finance and build," he stressed.

Acosta, for his part, was self-critical of the sector, acknowledging that it has lost sight of real clients in need of a home. "We have focused on adding amenities when what is really needed is a basic place to live. Furthermore, there is a significant urban heritage in secondary cities that could be revitalised to help address this housing emergency."

Finally, Martínez highlighted the additional challenges faced by young homebuyers, who are required to contribute 20% of the property value to secure a mortgage. "Young people's salaries have decreased in relative terms, and their lifestyle has shifted towards prioritising experiences over saving for a home," he explained. He added that this trend contributes to the growing polarisation between rural areas and large cities.

The 11th IE Real Estate Forum concluded with a consensus on the need for closer collaboration between the public and private sectors, along with effective policies to increase the supply of land and improve financing for the sector. Experts agree that demand for housing in Spain remains high and will continue in the coming years, but the lack of supply remains the primary obstacle.

Proposals discussed at the forum included considering housing as essential infrastructure, developing new access models such as "flex living" and revitalising secondary cities. However, for these solutions to be realised, it is essential to establish a stable and predictable regulatory environment that will attract the necessary investment to address this structural crisis.