In its recent 2023 annual report, the Bank of Spain performs a thorough x-ray on the housing situation in Spain: one of the biggest problems facing a growing part of the population. The institution's document combines purely descriptive analysis – why housing has become so expensive in recent years – with prescriptive analysis – what policies we should adopt to improve families' accessibility to a home. And both are highly suggestive.

Regarding the first point – the causes behind the sharp rise in prices – the Bank of Spain rules out that we are facing a new price bubble, since both the purchase price and rental price have become more expensive notably during the last decade; Furthermore, neither the banking sector has deteriorated its credit standards (the average mortgage loan is around 70% of the appraised value), nor has the indebtedness of families and companies skyrocketed (on the contrary, its relative weight has fallen continuously), nor has the sector of construction is oversized within the GDP or the labor market.

Consequently, housing has become more expensive because its relative scarcity has increased, that is, because the need for housing has increased more than its availability. And why has he done it? For several reasons, but the main one is the following: in large cities, the number of homes has increased more than the construction of new properties. For example, in Catalonia and Madrid, more than 100,000 homes were created in 2022 and 2023: however, only less than half of the new homes were completed, which means that in just two years a deficit of between 60,000 and 80,000 homes in each of these two autonomies. If the population moves to large cities and homes become smaller and smaller, then either more will be built or prices will rise.

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It is precisely here where the Bank of Spain proposes a decalogue of measures aimed at improving the accessibility of housing in our country:

1. Increase the supply of developable land and simplify administrative processes to accelerate urbanization: This should be the fundamental way to increase the supply of housing in those areas where there is demand and it is possible to build new properties. However, this is not always feasible: if citizens wish to reside within large, already consolidated urban areas, the land available to build new properties may be non-existent or very limited.

2. Regulatory facilitation of the change to residential use of land and real estate: one way to increase (at the margin) the supply of housing in large, already consolidated urban areas is to facilitate the change of land or property uses from industrial or commercial to residential. If it is more valuable to have a home than an office, it makes sense that offices (or bars) can be converted into homes.

Photo: Two people in front of a real estate agency.  (EFE/Marta Pérez)

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3. Promote the rehabilitation of homes: another way to increase (at the margin) the supply of housing in large, already consolidated urban areas is by rehabilitating existing housing, either to make it habitable (if it was so deteriorated that it was no longer habitable) or to better adapt it to the new needs of the population. their demanders (for example, as the average household size decreases, transforming one large residential unit into several small residential units).

4. Restriction of non-residential uses: A final way to increase (at the margin) the supply of housing in large, already consolidated urban areas is to restrict their non-residential uses, for example tourist rentals. On this point, however, the Bank of Spain is skeptical. On the one hand, because the proportion of homes for tourist rental (except in some very specific areas) is quite low. On the other hand, because these other non-residential uses, such as tourist rentals, also entail positive externalities (such as economic revitalization) that would have to be evaluated together with their supposed damages.

5. Improve the public transportation network in the metropolitan area: If it is not possible to additionally increase the supply of housing in large, already consolidated urban areas, another option is to transfer the demand for housing to the periphery (where it is possible to build). And to achieve this, it would be advisable to reduce the cost of living in the periphery: for example, with more developed public transport that allows citizens to travel quickly to large urban centers, even if they do not live there.

6. Increase the supply of housing under social rental regime: once housing production has been maximized, it is about offering it on more affordable terms. To achieve this, a possible solution is to transform a part of the housing stock into housing with a social rental regime, either because it is housing owned by the State or housing provided by the private sector.

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7. Professionalize the rental market: In turn, another way to improve the affordability of existing homes is to professionalize the rental market. Currently, many landlords are non-professional individuals, so their management costs as well as their risks (which they are unable to diversify) are high. And those higher costs translate into higher minimum rental prices.

8. Reduce regulatory risk: Both non-professional and professional landlords face a risk that cannot be diversified (within Spain) and that makes rentals more expensive: namely, the regulatory risk that the regulations change in unforeseeable ways and to the detriment of the owners. Hence, this regulatory risk is also transferred to the price and a lower supply of long-term rentals.

9. Modify housing taxation: Spain is a European country with high taxation on housing (it collects double the EU average), which contributes to making both the acquisition and ownership of a property more expensive. If real estate prices are high due to their relative scarcity, taxing acquisition and ownership contributes to making them even more expensive, so one way to make them cheaper is to reduce the tax burden on them.

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10. Other structural reforms: Finally, the declining accessibility of housing is not only due to the dynamics of the real estate market itself, but is related to other structural problems of the Spanish economy; for example, job insecurity or lack of savings among a portion of citizens. Without more stable employment relationships (which requires a reform of the legal framework), many young people will be blocked from accessing mortgage credit and, therefore, from purchasing a home. Of course, solving these structural problems without boosting the increase in housing supply will serve little purpose: more debt capacity with a rigid supply means even higher prices. But solving the previous problems without remedying this one will not be enough for many either.

In short, the rise in housing prices in Spain in recent years has a primarily economic explanation: final demand that increases faster than supply. As long as public policies do not try to address this imbalance—ideally by enabling much more supply—they will only be giving blind spots against all those families who are increasingly hinders access to housing.

In its recent 2023 annual report, the Bank of Spain performs a thorough x-ray on the housing situation in Spain: one of the biggest problems facing a growing part of the population. The institution's document combines purely descriptive analysis – why housing has become so expensive in recent years – with prescriptive analysis – what policies we should adopt to improve families' accessibility to a home. And both are highly suggestive.

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