Inequality in Spain will tend to grow in the coming years due to the change in the way of living of new families with an increase in rent to the detriment of property. A Fedea study details how the significant weight of home ownership in the country – which has always been considered an anomaly in Europe – was a determining factor in cushioning the effects of the Great Recession as of 2008.
In 2018 (the latest with available data), 84.4% of households in Spain owned their home. In contrast, currently two out of three new families choose to rent. This, together with the increase in rental costs with respect to income, makes it “predictable that this cushioning effect of inequality derived from property will be substantially reduced in the coming years,” according to the report.
Just when the previous great crisis began –the real estate crisis–, the weight of rentals was higher than the current one: 80.8%. “The high relative weight of property versus rent in Spain would have contributed during the Great Recession to significantly cushioning the negative impact of the economic cycle on income distribution, smoothing welfare losses, by counteracting the greater volatility of monetary income, especially in owner households with lower income”, according to the report.
Jorge Onrubia (Complutense Institute of International Studies) who has carried out the study together with Javier Ballesteros (Toulouse School of Economics) points out that the group that is most rented is that of young people, which is precisely the one with the lowest income. “The main problem with rentals is that it is a narrow market and there is little supply,” he adds. This causes prices to be very high. While in 2008 the payment of mortgages represented an annual average of 7,201 euros, a rental cost 5,759. On the other hand, 10 years later, the situation has completely changed since the average annual price of a mortgage is 5,635 euros and that of a rent is 6,049. It is not that the prices of the flats and, therefore, the installments have fallen, since the part that is destined to pay the amortization has grown, but that the interest paid has fallen by more than 2,000 euros as a result of the drop in interest rates and, therefore, the Euribor.
The report highlights that inequality grows by deducting from the income the expenses destined to pay for housing. In the case of households with lower income, the weight of rent is greater. “During a crisis the situation is much better for a family that does not have to pay rent.”
The study also confirms that during the analyzed period, “the average income of households that own their habitual residence is between 30% and 45% higher than the income of households that live on a rental basis”. Despite the growth in the weight of rentals, Spain continues to be one of the countries where property is most often chosen: eight out of 10. In contrast, the European average is 69%.
There are countries like Germany where there is almost parity between both models since rent represents 49%. The lower weight of rent is usually related to high prices and low labor mobility since there is little supply and, in addition, the worker is usually tied to a home he owns.
In 2020, Spain occupies position 24 out of 27 in terms of inequality due to “the duality of the labor market, the composition of the industrial fabric or the limited redistributive capacity of public policies, including that of the tax system”.
