Affordable housing in Spain has become a crucial topic , with a projected shortfall of 600,000 units according to the Bank of Spain. This shortfall not only highlights market failures, but also the need to rethink policy strategies to address it.

Foreign buyer bans: A limited approach to luxury

Restrictions on the purchase of property by foreigners have been implemented in several parts of the world in the hope of reducing housing prices. However, data show that these measures are ineffective and, in some cases, counterproductive.

In the British case, most foreign purchases are concentrated in luxury housing in specific areas such as London. This subject of properties does not compete directly with affordable housing aimed at low and middle income families.

The real crisis is in the affordable housing sector. In London, for example, affordable housing starts fell by 88% in the last year due to rising construction costs and high interest rates. This drop has left the less well-off virtually priced out of the market, pushing them into private renting, where prices are at record highs.

In Spain, although restrictions on foreign buyers have been discussed, the actual effect would be minimal on the affordable housing shortage. In fact, such policies could have unintended consequences, such as a drop in tourism revenues and local consumption. More importantly, they would not address the root of the problem: the insufficient supply of affordable housing.

Supply, the Achilles' heel

The housing shortage in Spain is not due to a lack of land, but to regulation and civil service examination policy. According to a study by Fang, Stuart and Tindall, landlords, with a financial interest in increasing housing prices, often pressure local representatives to block housing developments, particularly in their areas of influence. This creates a vicious cycle where individual interests hold back collective needs.

In Toronto, for example, councillors representing wards with a high percentage of homeowners are more likely to vote against new development, perpetuating the supply crisis. This phenomenon, known as NIMBYism(Not In My Back Yard), underscores how local politics can exacerbate the problem.

In Spain, this civil service examination subject translates into slow bureaucratic processes and a lack of incentives to build affordable housing. In addition, problems such as a shortage of skilled labor and high construction costs further aggravate the picture.

Impact of natural disasters on prices and supply

Globally, climate change adds a new dimension to the housing challenge. In California, wildfires and flooding have generated significant increases in insurance premiums, reducing home values and affecting demand. In some cases, homeowners have abandoned high-risk areas due to the lack of affordable insurance, which in turn depresses local markets.

Spain is not immune to these risks, but it is arguably better prepared than the United States. The Consorcio de Compensación de Seguros is a public insurer that collects about 7 euros for every 100,000 insured property, collecting approximately 700 million euros a year.

Even with the record losses from the recent DANA in Valencia, the Consortium will retain a reservation of more than $7 billion. Over time, events such as floods and heat waves could have a similar impact, especially in densely populated coastal areas.

The example of Spain and countries with similar public-private schemes can be valuable for economies suffering from market failures, such as the United States.

Long-term solutions

While current policies in Spain, such as the reduction of taxes on used housing for young people, seek to facilitate access to housing, these measures alone will not solve the underlying problem.

Structural change is needed to encourage the development of new affordable and sustainable housing, in addition to addressing the civil service examination policy at the local level.

The balance sheet offers positives, such as the example of the Offset Consortium, a test a public-private model that can inspire countries whose weather risk insurance markets are entering a stage of dysfunction.