The housing market in Spain

In Spain, more than 80% of families live in their own house. Real estate accounts for between 60% and 70% of Spanish households’ total assets and for the collateral of a most sizable proportion of their liabilities. Moreover, residential investment accounts for 7% of GDP. The workings of the housing market and house prices thus have notable consequences for the growth of the economy. On the demand side, residential construction is the main component of the construction industry, and the wealth effects on household expenditure arising from movements in house prices are potentially very relevant. On the supply side, an inadequate working of this market may bear significantly on job mobility and on the formation of wage costs. Further, from the monetary policy standpoint, the housing market plays a fundamental role in the transmission of monetary impulses, given the influence of interest rate movements in housing supply and demand conditions. The cyclical movements characterising this market, which affect both its prices and rate of activity, are therefore important for the functioning of the economy. For several years, the housing sector of the Spanish economy has been in a clearly expansionary phase (as in other developed economies), in which value added and prices have grown at notable rates. The aim of this article is to study the housing market over the past two decades, presenting the analytical information and elements needed to explain its recent behaviour. The article is structured as follows. After the introduction, section 2 describes changes in the number of houses and their prices in Spain. The following sections analyse the main factors that have influenced this. Hence, firstly, section 3 reviews the main changes and characteristics of the regulatory framework for housing (tax treatment, land use and rental regulations, public promotion policies, etc.). Next, sections 4 and 5 respectively consider the demographic and economic factors underlying the behaviour of the housing market in Spain. Finally, section 6 draws the main conclusions of the paper.