The seams of rental housing in Spain have been broken. The pandemic has exposed the imbalances and narrowness of this market, in which there are not enough houses and, above all, there are not them at affordable prices. The pressure of rents is suffocating in large cities, such as Barcelona or Madrid, and in cities with a high tourist concentration, such as Palma de Mallorca or Malaga.
According to a report by the Bank of Spain, the rental prices offered decreased by more than 50% from the time they reached the minimum at the end of 2013 until the maximum in May 2019. In this same period, the sale prices grew at a slower pace, 6.8%.
Furthermore, the effort rate is among the highest in Europe. A study by Workers’ Commissions recently warned that 41% of tenants (three million people) allocate more than 30% of their income. And that two out of three renters with excessive rents are at risk of poverty or exclusion.
Homeowners are already lowering the price of their homes in fear of a major market crash
It is true that the rent has given a truce in the year of the pandemic.Rents have fallen 3.6% from March 2020 to March 2021, according to Fotocasa. And in the most expensive Spanish cities, such as Madrid, Barcelona, Palma de Mallorca or Malaga, they have plummeted more than 10%.
Even Idealista claims to have detected that the weight of houses below 750 euros per month has grown to 42% in the provincial capitals. But it is a parenthesis, the result of the massive entry into the tourist housing market from platforms such as Airbnb and the exodus of a part of the tenants to small and medium-sized cities.
For example, in the province of Madrid the supply has grown by 112% in one year. It is a respite until the economic and health situation of the country stabilizes and the tourist and student flats return to their original market.
The experts consulted abound in this idea. “The decreases are due to temporary causes and, therefore, their recovery will be rapid,” argues Alejandro Bermúdez, CEO of Atlas Real Estate Analytics. “The economy is expected to rebound from the second half of the year, which could gradually be reflected in a recovery in prices,” says Eduard Mendiluce, CEO of Anticipa, which manages 9,000 homes owned by the US fund. Blackstone.
These increases will return – if nothing prevents it – at a time when more and more citizens need to rent, after the economic crisis left by the pandemic and that is preying on low-income households and young people: the youth unemployment rate reached 38% in 2020, a figure far higher than most European countries, according to a PwC report.
For them there is no other option but to lease or postpone their emancipation project (one of the latest in Europe). The INE reports that the percentage of people aged 30 to 34 who lived with their parents or with one of them in 2020 stood at 25.6, with an increase of five points since 2013.
The most recent calculations determine that Spain needs around 1.8 million rental homes to match the main European economies, according to a study by Atlas Real Estate Analytics. Of these, a million houses with affordable rents are urgently needed to serve families that today (and yesterday and tomorrow) allocate more than 40% of their income to that payment, according to another study by Atlas and Gesvalt.
But for the Association of Real Estate Companies with Rental Assets (Asipa), the hole is much bigger: “There is an estimated deficit of 2.5 million homes to create in a period of 15 to 20 years. This deficit affects, above all, “the population segments with lower incomes, so the effort must be focused on boosting the construction of affordable housing,” says Nicolás Díaz Saldaña, CEO of the Socimi Témpore Properties.
However, and despite the ongoing projects in the public and private sectors, only 90,180 rental homes will be put on the market until 2028, according to Atlas, which takes into account the projects of developers, funds and administrations ( state and autonomous).
The imbalance between supply and demand is now showing its worst side, although it started in 2008, the year in which the housing bubble burst and rents began to gain size. Since then, all age groups, with the exception of those over 65, have significantly increased their weight. There was a time when floors barely lasted a couple of hours in the market and not because they were cheap, but because they were scarce.
Today, the percentage of the population living in rent in Spain is around 23.8 (18% not counting the free transfer), when in 2007 it was 20%, according to Eurostat.
“The main growth has been concentrated in the last five years, with almost half a million new homes for rent,” says Javier Rodríguez Heredia, head of the Asipa Residential Commission, whose partners have about 30,000 houses for long-term lease. and they have another 10,000 under construction. The consulting firm CBRE estimates that it will advance to 27.3% of households in 2024.
It was already predicted in 2012 by the Nobel Prize in Economics Robert J. Shiller when he said that one of the consequences of the crisis would be that Spain would have to reduce the percentage of homeowners. Even so, the country is still below the European average (30.7%), and that of Germany (48.6%), France (35.6%) or the United Kingdom (35%).
But it is not this, but the social rent of public ownership for the most disadvantaged, which brings out the colors to Spain. That park barely represents 1.6% (290,000 town council and community houses), almost 10 times less than that of European neighbors. Regarding affordable housing – with rents below the market – the park “is 14 times lower than the EU average,” they emphasize in Asipa.
This means that when there is a recession and unemployment rises, “families with fewer economic resources have difficulty paying their rent,” adds Mendiluce.
This social park would have been “essential to achieve the implementation of a true positive right of access to decent housing, making effective Article 47 of the Spanish Constitution”, says Jesús Leal, Professor of Sociology at the Complutense University of Madrid. Build that stockit would take “25 or 30 years.”
The fact that Spain cannot now make use of that enormous social cushion is due to the fact that housing policy has been promoting, since Franco’s time, the purchase of houses through significant tax advantages.Spain wanted owners, not proletarians. In fact, when it comes to equating itself with European countries, some particularities of the Spanish case must be taken into account.
Around 95% of the rental market is in the hands of more than three million individuals who use this income to supplement their salaries or pensions. 80% of Spanish savings are concentrated in housing, compared to only 20% in Germany, due to the good profitability that it offers and that other investments do not provide. “From 2014 to 2018, the average rental profitability has increased by 46%,” according to the Appraisal Society.
On the other hand, only 4.2% of the stock is owned by 40 financial entities and institutional owners who accumulate almost 110,000 houses, calculated in Atlas Real Estate. The largest landlords in the country are the Blackstone fund, with more than 40,000 flats for rent through the different platforms with which it operates in Spain (Testa Residencial, Anticipa, Albirana Properties, Fidere and Torbel), and Caixabank, which, according to the own entity, has a portfolio of 19,500 rental houses.
“There is no other country in the world that is dominated by individuals. The weight of large operators in other countries reaches 30% or 35%, ”says Beatriz Toribio, general director of the Association of Rental Homeowners (Asval).
Rent is gaining ground, yes, but Spain has not stopped being a country of owners. Many citizens would buy if they could and still think that renting is a waste of money. But “there are economic and socio-cultural circumstances that will lead us to be living in rent for many more years than before,” says Rodríguez Heredia.
Those circumstances are diverse. On the one hand, unemployment and job insecurity, exacerbated by the pandemic, prevent a part of the population from generating the necessary savings to buy a house – they need 30% (20% plus VAT) of the property’s value. \
“Until the first years of this century it took four years of income to buy, now we are in more than seven,” recalls José Luis Suárez, professor in the Department of Financial Management at Iese. “The permanence in the rent, especially in the case of young people, is going to extend over time,” adds María Romero, consultant in the area of Applied Economics of Afi.
Young Spaniards can no longer buy or rent a home
The accessibility of the purchase is compromised because financial institutions are more strict when granting mortgages, especially in a scenario of negative interest rates, an unemployment rate of 15.9% (data from the first quarter) and the problems of liquidity that the bank has to face.
There is another key. “We are witnessing significant structural changes in the preferences of the youngest, the traditional family structure and geographic mobility in the labor market,” says Díaz Saldaña.
From Afi they also point out the change that is taking place among young people, who prefer to pay for the use to the detriment of the property. Although there are those who think that the latter is nothing more than a euphemism to speak of a “precariousness that passes itself off as cool and unstable lives,” says Carlos Martín Urriza, director of the Economic Cabinet of Workers’ Commissions.
New housing law
The solution to such a mess happens, or so it is intended, by the housing law that the Government finalizes and that will come out in May, in the weeks after the elections in the Community of Madrid, and by the rise of the build to rent business (build new homes to be used only for rent).
The coalition government has spent months trying to close a law that establishes measures to unblock the market. It is costing the agreement in the form, although not in the substance. United We can fight to limit the price in the most stressed areas, despite the fact that the German Constitutional Court recently annulled the Berlin law that limited rents and that the Catalan rule that does the same has been appealed to the Constitutional Court.
However, the Socialists trust their proposal to increase tax deductions for landlords that lower the price of their homes in the areas that the communities and the State declare most stressed. The ministry led by José Luis Ábalos also proposes to allocate at least 50% of public land to protected housing for rent. And that the qualification of the protected rental flats is permanent to avoid that public parks are sold.
“These measures manage to contain the abusive increases in prices and guarantee the supply”, declares David Lucas, secretary general of Urban Agenda and Housing. In that law, in addition, the Government will define the concept of empty housing to be able to apply to its owners a surcharge of the IBI and thus force them to rent.
The tenant unions have been claiming for months to limit rents and expand the public park, something in which Carlos Martín, from the Workers’ Commissions agrees: effective is rent control ”. And he gives as an example the price limit for masks: “It is used when markets do not work competitively to avoid abuse.” This doctor in Economics believes that what is at stake is to turn housing into one more public infrastructure, such as health or education.
In the same line of thought is Sarah Kumnig, a social scientist at the Vienna University of Economics and Business, a city that has become a benchmark for large European cities due to the creation of a large public housing park dating back to 1920 The social rent of the Austrian capital represents more than 40% of the real estate market. Kumnig believes that the problem is that the house has become an investment product. “And who would invest if there were no benefits?”
“The need for profit is diametrically opposed to the provision of affordable housing,” he adds. The construction of more flats by private companies “does not solve the housing crisis as long as there is no regulation of the rental price,” he points out.
The sociologist Jesús Leal is committed to freezing prices in the most stressed areas, even temporarily. “From the social economy it is not a mistake to de-commodify housing and limit prices,” he adds. There are those who stand out from the debate of yes or no to the limit.
Sergio Nasarre, who heads the Unesco Housing Chair at the Rovira i Virgili University (URV), does not believe that anyone’s life aspiration is to have a “home”. For this reason, he is in favor of promoting intermediate tenure: the shared one – to be an owner for all purposes, but only by acquiring a part – and the temporary one – to buy the house only for a certain number of years.
On the other side are the economists, who agree on few things, except when it comes to limiting rents. The Nobel laureate in economics Paul Krugman was openly opposed to regulation a year ago. The companies in the sector warn that it generates the opposite effect.
Beatriz Toribio, from Asval, says that limiting leases “would cause a price increase due to the reduction in supply.” “Families that are willing to rent, especially those with lower incomes, will have more difficulties because the owners will favor the household with higher incomes,” Eduard Mendiluce believes.
In Afi they consider that the caps are a mistake: “For rents to adjust, the supply must be increased,” says María Romero. For all of them the law of supply and demand prevails. “The higher the offer, the less pressure on prices, and if, in addition, it is a professionalized offer, there will be a more accurate and real valuation of the rents”, says Sergio Gálvez, general director of Strategy, Investments and Alternative Development of Aedas Homes.
The other stick that Spain intends to lean on to get out of the black hole of rent is private capital. Asipa reminds that foreign investors are essential to finance the construction of houses for rent. “Creating 2.5 million homes would imply financing needs of 300,000 million euros [almost 30% of GDP],” says Rodríguez Heredia.
“The private sector is part of the solution and not the problem. The Administration needs the private sector and we have to build bridges ”, claims Toribio.
With institutional savings ready to commit long-term capital, developers have not hesitated to jump and start building rental homes that they then sell to investment funds . It is what is known in the Anglo-Saxon world as build to rent, which is only at the beginning of its path in Spain, but which is the bet for the future after the covid.
More than 9,000 homes will be put on the market per year (in 2022 and 2023) under this model. And 13,172 in 2024, according to Alejandro Bermúdez. “Many promoters have started turnkey projects for funds, which may represent around 2,000 houses a year, 2% of total production,” says Daniel Cuervo, general secretary of the APCEspaña employer association.
Although the profitability obtained by the promoters is somewhat lower than that of the traditional model, they are interested in the formula because “it avoids the risk of sale by marketing the entire development to a single buyer,” says Cuervo. For their part, the funds treat these investments in a similar way to infrastructure projects. “The returns are low, around 2% or 3%, so the investments are maintained in the long term. It is not a speculative sector ”, they state in Asipa.
Investment in these projects exceeded 2,300 million euros in 2020, a figure that is double that of the previous year, details a report by Savills Aguirre Newman. According to this consultancy, Madrid, Barcelona and their metropolitan areas, with more than 80% of the investment volume, are the main focus of interest.
However, the difficulties in reaching the profitability objective and the scarcity of opportunities in these two markets are causing attention to turn to other cities, such as Valencia, Seville, Malaga and Palma de Mallorca. Some of the most active institutional funds in 2020 were Ares Management, Hines, AXA IM, Aberdeen SI, Patrizia, DWS, AEW or Vivenio (APG).
The funds generally do not rent their flats at a price lower than that offered by private landlords, although somehow “the housing stock would increase and this would be reflected in prices,” says Cuervo. In addition, professional management and economy of scale result in cheaper services for tenants.
In Asipa they give an example: “It does not cost the same to hire a porter or cleaning maintenance service for a building as for ten”. “It ensures a more agile management and a higher quality service to clients (procedures, resolution of incidents, rehabilitation).
The contracts are longer and only two months of guarantees are required ”, explains Marcos Beltrán, commercial business director of Real Estate at Altamira Spain, with 10,900 assets for rent. What’s more,
Aedas Homes —with nine projects with more than 1,100 flats for Ares Management, Grupo Lar-Primonial and Lazora— was the first of the large listed developers to deliver, on April 13, the first development under this model. It is in Torrejón de Ardoz and there are 103 homes, which now belong to the Ares investment fund.
In this build to rent, the public Administration will also have great influence in the coming years. At both the national and regional levels, numerous initiatives have been activated, the most ambitious is the Government’s Plan 20,000 , with which 20,000 affordable rental homes will be raised during the legislature through public-private partnerships.
This is only one of the axes of the plan to develop a true public park of affordable housing that the Government has underway and that includes up to 100,000 houses. The public park of social housing of the Ministry of Transport, Mobility and Urban Agenda will be around 44,000 homes and some 56,000 will come from public-private collaboration for the creation of a social fund.