Spanish real estate market: is a correction looming? | Article

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Strong household growth and lower supply should support price growth

On the other hand, the structural growth in the number of households will support the real estate market over the next few years. Due to the sharp decrease in the number of households, the number of households is increasing faster than population growth, which is supporting the demand of the real estate market. Over the past 20 years, more than 20 million households have been added, an increase of 70%. Between 2002 and 2012, the number of households particularly increased with an average annual growth rate of 2.4%. The growth rate has slowed to an average of 0.4% per year over the past decade, but has continued unabated.

In the years to come, household growth will continue to support the real estate market. The INE predicts that the number of households will increase by 1.1 million by 2035, an increase of 5.3% in 13 years. This is mainly due to the strong growth in the number of families of one or two people. These two groups are expected to grow by 16% and 11% respectively, while the number of households with more than three people will decrease by around 5%. Spain already has a high proportion of apartments (66%), compared to, for example, France (34%), Italy (55%) and Portugal (46%), but this proportion is expected to further increase over the next decade. by a growing number of singles. In 2035, single people will represent 29% of all households, compared to 26% in 2022 and 20% in 2002.

In addition, supply is increasing more slowly than the number of households, which naturally puts upward pressure on prices. Between 2011 and 2021, the number of households increased by 5.4%, while the housing stock only increased by 2.9% over the same period, according to figures from the Ministry of Transport. For this year and next, we expect a further decline in construction volumes, which will put additional pressure on the real estate market. The sharp rise in the cost of construction materials is an additional brake on construction activity. Production levels are currently more than 20% lower than before the Covid pandemic and we expect the sector to contract for the fourth consecutive year. For next year, we expect a marginal recovery. The upward trend in costs seems to have slowed down. In addition, the Spanish construction sector will see positive effects from investments in EU recovery funds. Nevertheless, the number of households should also continue to grow faster than the housing supply in the coming years, fueling price growth.

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