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The cost of housing in Spain

Spain has one of the highest levels of home ownership in European Union. Since the 1970s there have been huge changes in the Spanish housing market and, in the past 10 years in particular, there has been a boom in house prices.  

A typical three-bedroom family apartment in a Spanish city cost about four times the average annual salary in the late 1980s. By 2006 the cost of the same apartment has risen to around 15 times the average annual salary.

What are the factors that have influenced the steep rise in cost of housing? In the late 1980s the Spanish economy was fairly stagnant, interest rates were high, reaching 18% in 1987, and banks required buyers to provide large deposits of 20% to 30% of the property price.

The banks and financial institutions were risk averse and a typical mortgage was no more than 12 to 15 years.  The construction industry continued to build homes but there supply was greater than demand so prices remained low. Renting was a viable alternative and many tenants had long-term contracts with low rents.  

In the 1990s there were a number of changes. The economy began to recover and interest rates steadily dropped. Banks started lending larger sums of money over longer periods. Spain also began to experience immigration from other parts of the EU, Morocco and Latin America. This added to the demand for housing.  

Housing has become a major issue on the political agenda in Spain today. One of the first acts of the Spanish Socialist government, elected in March 2004, was to create a Ministry of Housing.

The new housing minister Maria Antonia Trujillo received harsh public criticism when she proposed that the construction of “micro” apartments of 25 to 30 square metres as a solution to the lack of affordable housing. What’s more, property prices rose by 17% in the socialist government first year in office.

Some experts now believe that prices may have reached their peak. Interest rates, as low as 3.5% in 2005, started to rise slightly in 2006 for the first time since the 1990s.  But there is still no sign that the demand is slowing down.

The average length of a mortgage is now 30 to 35 years and many young families are moving out of their neighbourhoods in the cities to find cheaper housing elsewhere. This will no doubt have an effect on the traditional communities and family support network in the long term.

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