Real estate investment has been experiencing a certain slowdown since mid-2022. Some fear that the Housing Law will reduce the interest of large international investors in the Spanish market.
However, after a year of measures such as limits on rent increases or extraordinary extensions, private individuals have not seen their dynamics change drastically: the available data show the same trend in the profitability of rental housing as in the previous years.
The inflationary episode in Europe has brought consequences that would have weighed down investment in housing. The latest quarterly report on the Spanish economy, published by the Bank of Spain in June 2023, points to three main reasons, none of them related to the country’s legislative framework.
On the supply side, “the high cost of some of the materials used in residential construction” stands out, such as brick or concrete, and “the shortage of labor”, a reality that the country has dragged on since the great financial crisis of 2008.
On the part of the demand, the main reason would be the “progressive tightening of the financing conditions of the sector”, such as the increases in interest rates, measures that the European Central Bank (ECB) began to carry out in 2022 to contain prices in the euro area and has continued through 2023.
Despite this, the figures on new construction permits, which have not been very high during the last two years, “would have maintained a certain stability in the first months” of 2023. Home sales, the report points out, “show a some resilience since the beginning of the year”.
Gross rental profitability, which measures the economic return produced by a home owned by renting it out in exchange for income, has gone from 3.7% in 2020 and 2021 to 3.5% in 2022, according to the Bank of Spain.
This downward trend is consistent since 2014, when this variable reached a peak of 4.6%, so it would be irresponsible to attribute it, without reflection, to the new Housing Law.
If we analyze the data by quarters of several alternative investments, we will see that the investment in the stock market shows a much more volatile behavior than the rental return.
The yield on 10-year government bonds now equals that of rent, but it did not do so in 2020 (0.0%) or 2021 (0.5%), when eurozone interest rates were also at 0 .0%:
In a country with a long culture of property, the purchasing power of families depends to a large extent on the value of their homes.
Data from the Bank of Spain on the (total) profitability of housing, which add the variation in apartment prices to rent, show favorable data over the years:
The fluctuations in this variable therefore depend on the variation in prices, which, in 2020, for example, fell temporarily with the arrival of the pandemic, before rising again in 2021.
From now on, a slight decrease in this variable is expected, which has started in 2023 at 7.0%, due to the stabilization of housing prices due to the cooling of the economy, and not due to the application of the Housing Law.
