Supply vs demand: Why house prices in Spain are continuing to rise

House prices across Spain are forecast to rise by another 5% before the year is up

Despite the extortionate price of houses in many regions of Spain, and the fact that these prices are continuing to rise at an alarming rate, property demand is at an all-time high, not only across the Peninsula but equally so in the Balearics and the Canary Islands. In fact, the demand for homes far exceeds the quantity of houses actually available. A recent study by BBVA Research concluded that this current trend is likely to remain the case, putting huge pressure on the property market. Considered to be of particular significance is the demand from young people and foreigners immigrating to Spain. As this demand increases, naturally so do house rates. The study (which combines data gathered from across the whole of Spain) demonstrated that following a rise of 3.9% during 2023, prices have already risen by 4.3% since January. Statistics obtained from the study forecast that prices will increase by yet a further 5% before the end of the year, with a predicted rise of 4.7% in 2025. In Mallorca, growth has risen from 9% between 2022 and 2023, to an impressive 11.2% by January of this year and further growth is predicted [Iris Gruenewald, Balearic Properties]. The Canaries, in comparison, had the biggest property price increase across the whole of Spain in February of this year, with a monthly rise of 0,8% on second hand homes and a whopping 23% year on year variation [Canarian Weekly, 04/03/2024].

Supply verses demand

BBVA experts predict that by 2030 the population of Spain will consist of more than 52 million people, an estimated increase of some 3.5 million residents, resulting in a need for up to 2.1 million new homes. As a consequence of the growing population, property sales are anticipated to grow by some 5% before the year end, and another 3% in 2025. This is the equivalent of close to 700,000 new homes.

As a result of this imbalance between supply and demand, around 30% of an individual´s income currently goes towards accommodation, a figure which, in the Balearic Islands, Madrid and Basque Country surpasses 35%. The BBVA highlights that although there will be a significant amount of new properties built, it will be impossible to keep up with demand. Lack of land and labour, combined with a drop in building permits issued in 2023 – only a meagre 0.5% more were issued than in 2022 – all effect the productivity of building companies. However, restrictions have now been reversed, with building permits increasing by 14.8% during just the first 5 months of this year, compared to the previous. It is a notable rise, with around 10,500 houses under new construction each month, but it´s an increase which is still not considered to be enough.