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Rental prices in Spain have soared 50% on average in the last five years. The last report of the Bank of Spain on the evolution of the rental market from 2014 to 2019 has warned about this trend that is suffocating many Spanish families across the country.
Contrary to what used to be common in Spain, rental prices are rising faster than house prices. The dynamism of rental prices is reaching historic highs, especially in big cities like Madrid and Barcelona. Currently, the average rental price in Spain is €10.9 per square meter, according to Idealista, the main real estate portal in the country. This is 5.8 percentage points more than a year ago. However, in Madrid and Catalonia, this figure increases to €14.7 and €14.4 respectively and keep rising every month.
This uncontrolled growth has a bigger impact on the most vulnerable population groups, who tend to rent more than high-income households. Among these groups, which are mainly young households, immigrants and temporary workers, the rental demand has increased considerably due to their difficulties to afford to buy a house.
Among the causes, the Bank of Spain has stressed “the high incidence of unemployment, the short duration of the new labor contracts and the greater relevance of the reduced working hours,” all consequences of the economic crisis. “The combination of low labor income and the risk of unemployment makes it difficult for a significant percentage of households to access a loan for the purchase of housing,” emphasizes the report.
The most prominent case is young households of people aged 30 to 44, whose rental ratio has increased from 19.1% in 2010 to 29.9% in 2018. Despite the economic recovery, the impact of the economic recession keeps hitting young generations, whose unemployment rate is still situated around 30%.
But, while the demand keeps increasing, the rental market is not offering enough supply. The report points out mainly to two factors, the lack of social housing and the increase in tourist use of housing. “The lower dynamism of the supply occurs in a context of weakness of the public rental offer and in which alternative purposes for residential housing have appeared,” indicates the text.
On the one hand, the report calls attention to the low weight of social housing in Spain comparing to other EU countries and warns about the decline tendency of social rent in the last years. On the other hand, the text stresses the emergence of new forms of vacation rental like Airbnb that compete with the residential use of the supply. “The displacement to the tourist activity of a significant percentage of homes potentially destined for rent can generate an increase in residential rental prices,” points out the report in reference to downtown neighborhoods in some Spanish cities.
The stagnation of wages together with the increase in the rental price has led to a considerable increase in the amount of income dedicated to rent among many households . According to the Bank of Spain, 24.7% of Spanish households dedicated more than 40% of their net income to pay the rent in 2014, compared to the 13.1% in the OECD average. Many organizations consider spending more than 40% of one’s income on housing as ‘housing cost overburden’, a phenomenon that can threaten the general welfare and standard of living of families.
New rental index
The Bank of Spain has recognized some limitations regarding the analysis of the rental housing market due to the absence of an official price index for the new contracts. This is why the institution must use unofficial indexes such as Idealista to complete the information available in the official statistics.
The acting government of Pedro Sánchez announced last week the creation of a national index using the Income-tax declarations anonymously. This index is a result of previous negotiations between the Socialist Party (PSOE) and the left-wing Unidas Podemos, although the final purpose was different for each party. While Podemos wanted to use the index to limit rents in stressed areas, PSOE will only use it in order to develop policies to raise the rent supply and implement fiscal incentives.