Housing shortage revives stalled projects in Spanish cities

Joaquín Gómez stands on a hill overlooking the scrubland on the outskirts of Madrid and shows the expanse below. Areas have been demarcated to show where 22,000 houses are supposed to be one day; a road, unblemished by use, does not cross anywhere.

Mr. Gómez manages Los Berrocales, one of four planned developments in the south-east of the capital. If built, they will provide a total of more than 100,000 homes for middle-income people.

Some 18m under the only paved road is a sewer pipe, “but you can’t see it, so we built this street,” Gómez explains. “There is no reason to have a street but it is an economic effort to show that Los Berrocales is not a failure.”

The Spanish economy struggled after the bursting of a real estate bubble in 2008. The previous year there had been more housing starts in Spain than in Germany, France, Great Britain and Germany. Italy combined and the construction sector employed 13% of the workforce: 2.7 million workers.

Today, Spanish property prices are on the rise again, but this time the rise is not the result of a boom in recklessly approved mortgages.

Back on track? The massive Los Berrocales site

Today, after years of strong economic growth concentrated in major cities and coastal tourist regions of Spain, the lack of new apartments is driving down prices in these regions.

After peaking in 2007, Spanish house prices fell an average of 44.7% before starting to turn in 2014. Since then, prices in Madrid and Barcelona have increased by 45% and are below 15%. % of their peak.

The prices in certain parts of the interior, called España vaciada, or “empty Spain”, are still down by more than half, according to Ismael Kardoudi, research director at Fotocasa, a Spanish real estate portal.

While the market has recovered in places like Madrid and Barcelona, ​​mortgages and construction have not kept pace. The number of new mortgages rose from 1.9 million in 2006 to 482,000 in 2018, according to the national statistics agency, and new housing starts rose from more than 850,000 to 100,000 during the same period. , according to the Spanish Ministry of Development.

“Between 2008 and 2015, no one worked on creating a land bank for the future,” explains Patricio Palomar, head of alternative investments at Aire Partners, a real estate consultancy firm.

“When the market started to take off in 2015, there was almost no land ready because no one had obtained the development permits. If Nike launches a model and it sells a lot, it is easy to produce more sneakers. But in real estate, permits can take six years, ”he adds.

Los Berrocales, just inside the city limits of Madrid, is one example. The group started the project in 2006, but the 2008 crash put business development on hold for seven years, during which time the project built a framework to convert farmland into urban blocks.

Mr Gómez says Los Berrocales has invested € 200 million in infrastructure, such as sewers and power lines. He also built 12 road bridges. In 2015, a new Madrid city government postponed granting final permits over fears the project was speculative, but earlier this year approved the first two phases.

“From 2015 to 2019, we were virtually paralyzed,” says Gómez.

Half of the housing in Los Berrocales will be subsidized housing sold at below market prices. Mr. Gómez estimates that a two or three bedroom house will sell for between 160,000 and 180,000 €.

The project would be a step towards tackling the shortage of affordable housing in Spain’s largest cities. This gap has helped trigger a shift towards rental, even though the market is underdeveloped, with few major players. This in turn pushed up rental prices, forcing more young people to live with their parents.

According to Fotocasa, an average tenant in Madrid paid 51.1% of their salary in rent in 2018, up from 41.4% in 2016. In Catalonia, of which Barcelona is a part, it was 49.2%, against 46.4 %.

General Madrid Nuevo Norte

An impression of the development of Madrid Nuevo Norte

“There is an urgent need to expand the residential rental market in Spain. Studies show that between 1.5 and 2.5 million new units will be needed over the next 15 years, ”says Concha Osácar, founding partner of Azora, a Madrid real estate fund that manages 15,000 apartments worth of more than 2 billion euros.

Ms. Osácar notes that 23 percent of the Spanish housing stock is rental, compared to 34 percent on the European average.

This tight market has inspired workarounds for entrepreneurs such as José Manuel Cartes. This year, he founded Libeen Smart Housing, an online rent-to-own program. Customers pay two 5 percent installments which are then added to part of their rent. After the fifth year, their contract turns into a traditional mortgage with 20 percent already paid.

“On the news, you see that we Spanish millennials are more and more European because we are embracing rental. This is a total lie, ”says Cartes, 35. He mentions studies by Century 21 and Pisos.com real estate agents showing that 89% of young Spanish adults who don’t live with their parents want to own a home, but only 30 percent have obtained a mortgage. “A lot of us have good incomes but we don’t have any savings.

Some of the pressure on Spain’s main urban real estate markets may start to ease with the arrival of a series of developments on the market. North of the capital, the 10,500-unit Madrid Nuevo Norte was approved in July – 26 years after its design – and train stations and abandoned land will become an area of ​​office towers, houses and parks.

In the working-class neighborhood to the south of the city, Gómez expects construction on Los Berrocales to begin in 2022.

He says his goal is not to retire until the first residents move in. He was 52 when he started sketching the project. By the time the first apartments of the initial phase of 4,500 units are expected to hit the market at the end of 2023, Mr. Gómez will be 74 years old.