housing market

   The housing market is characterized by the relatively high cost of buying and renting; one of the highest levels of home ownership in the European Union; the small proportion of housing for rent; and the large proportion of second and vacant homes. These characteristics have raised a number of important issues: notably access to housing by those people with limited resources, the extent to which the housing market limits the geographical mobility of labour, the poor quality of many urban residential environments, and the relationship between the land market and local authority finance.

   The paradox of the housing market is that although Spain has a low density of population (73 per km2), and only 6 percent of its area is urbanized, land and property prices are high by west European standards. Unravelling this paradox requires knowledge of the complex processes working in the land and property market. Demand for housing arises from residents and non-residents, who in turn view housing as both a form of shelter and a form of investment. In the 1960s and 1970s there was a huge increase in the demand for housing in cities, on the back of relatively high population growth rates, rising incomes and a substantial migration of people from rural to urban areas. At the end of the twentieth century increased demand for housing came primarily from a decline in household size, as people delayed marriage, had smaller families and lived longer. Around the coast and in rural settlements house prices are frequently influenced by demand from non-local residents seeking second homes. For investment purposes housing has been seen as a convenient method of securing tax concessions or of otherwise reducing tax liabilities.

   Demand is also influenced by institutional factors, notably the availability of finance. Traditionally, the level of downpayment on a house has been relatively high (20 percent) and the repayment period of a mortgage relatively short (15 years). An expansion of credit in the late 1980s contributed to the property boom at that time. Very high interest rates helped to slow the economy and bring this boom to an end in the early 1990s.

   The supply of land and property is regulated through the law and through the planning system. There is also extensive intervention by a variety of institutions. Housing development is undertaken by both the public and the private sectors. In the private sector it is undertaken by individuals, groups (cooperativas) and commercial developers. Controls on building development imposed through the planning system reduce the quantity of land available for housing development and thus push up land costs. Simultaneously, these controls have been inadequate to provide quality residential environments in cities. In the mid-1990s 90 percent of the land area in Spain was classified as unavailable for building (suelo no-urbanizable) and only carefully specified areas were designated for early housing development. Urban development plans are frequently very long in gestation and when published may then be partially revised, causing uncertainty in the land market. Moreover, acquiring development permission has frequently been a time-consuming and costly business. A more liberal land development regime runs the risk of uncontrolled urban growth lacking adequate public services. Yet this occurred anyway in the 1960s and 1970s as the planning system was either unable or unwilling to control development. Nevertheless, there has been widespread agreement on the need to simplify and increase the flexibility of land management.

   Apart from intervention through the planning system, the government has intervened in the housing market to encourage the achievement of targets for the provision of housing through National Housing Plans (Planes Nacionales de Viviendas) and to subsidize housing for sale rather than to provide large numbers of houses for rent. Sub-sidized housing (which represented about 5 percent of all housing starts in the early 1990s) is designated as either Officially Protected Housing (Viviendas de Protection Oficial—VPO) or as Fixed Price Housing (Viviendas de Precio Tasado—VPT, introduced in the 1992–5 National Housing Plan). Subsidies are provided through soft loans (low rates of interest and longer repayment periods), tax measures and grants towards construction. In general, the level of subsidy to buyers depends on their income level and the floor area of the house, with some groups such as the young attracting special assistance. Although the objective of housing promoted by the public sector has been to improve access to housing by the less well-off, the financial and administrative obstacles involved in acquiring such housing have remained too high for some people. Only a small proportion of the housing stock in the mid-1990s was available for rent. The 1991 Census of Housing recorded a total of 17.1 million dwellings (viviendas), of which 11.7 million were the principal homes of the occupiers. Of these principal homes, only 1.8 million (15.4 percent) were rented, the lowest proportion in the European Union. From this historic low, the proportion of rented homes climbed to around 18 percent in 1995, due largely to more liberal legislation on property rental.

   The explanation for the small rental sector lies in the tight restrictions which have been placed on landlords in the past in respect of tenancy agreements (very secure tenancies and frozen rents), the limited volume of public housing for rent and the encouragement given to people under the Franco regime and after to buy their own property. Ossified rents enabled low income families to remain in city centres along with small family businesses and may have protected city centres from wholesale redevelopment. The first steps to liberalize the rental market were introduced by the Minister of Finance, Miguel Boyer, in 1985. By the early 1990s there were enormous differences between new and old rents. More extensive measures were introduced in January 1995 under the Urban Property Rent Law (Ley de Arrendamientos Urbanos). Broadly, this law began the process of bringing rents into line with current market values over a period of between five and ten years.

   Spain has one of the highest levels of secondhome ownership in Europe. Many of these homes represent the rural origins of people now living in the cities. Others have been bought for tax and investment reasons, and as an escape from the noise and congestion of urban living. There are few villages in Spain where refurbishment, rebuilding or new building cannot be seen. There are also a large number of vacant dwellings; 2.5 million (excluding weekend and holiday homes) according to official estimates in the early 1990s. In part this is a reflection of rural depopulation, but the explanation for this number also lies in property market speculation and second home ownership. The principal social issue associated with the housing market is that it has not enabled the constitutional guarantee of access to good quality housing to be met. The problem is most acute for those with limited resources, notably young people and the poor. For young people the difficulties are compounded by very high rates of youth unemployment. Hence the tendency for young people to continue living with their parents for longer than in many other countries and to delay marriage. The frantic pace of house building in the 1960s and early 1970s overwhelmed the planning authorities, resulting in poor quality residential environments. City centres were ringed with densely spaced and poorly built tower blocks, frequently accompanied by inadequate public services and infrastructure. Pressure on housing was also reflected in developments which were built without planning consent, including some shanty town communities, especially in the south of Spain. The planning system has since been strengthened, but the impress of the 1960s and 1970s is clear in cities across Spain. One final but crucial point concerning land and property is that it provides an important source of local government income (exploited to its full in the municipality of Marbella in the mid-1990s). In the mid-1990s local taxes included those on property, on construction work and a land value apprecia-tion tax. In addition, local authorities gain income from granting building licences and from other related land transactions. Hence, there are benefits to local authorities when land and property prices are rising. There is even an inducement for local authorities to manipulate the market to create higher prices. Simultaneously the government spends large sums of money helping people gain access to housing.

   Further reading

   - Alberdí, B. and Levenfeld, G. (1996) "Spain", in P. Balchin (ed.) Housing Policy in Europe, London: Routledge (a concise account of the characteristics of the housing market in Spain).

   - Hooper, J. (1995) The New Spaniards, Harmondsworth: Penguin (chapter 20 offers a succinct and lucid account of the social effects of changes in the housing market).

   - Keogh, G. (1994) "Land Law and Urban Planning in Spain: An Economic Perspective", European Planning Studies, 2, 4: 485–95.

   - McCrone, G. and Stephens, M. (1995) Housing Policy in Britain and Europe, London: UCL Press (chapter 6 is specifically relevant and the book includes discussion of a number of general topics applicable to housing in Europe, including housing and labour mobility).

   - Riera, P. and Keogh, G. (1995) "Barcelona", in J. Berry and S.McGreal (eds) European Cities: Planning Systems and Property Markets, London: Spon (commentary on land law and planning).

   KEITH SALMON