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A new real estate boom: the rental market

Barcelona 1 e1499160598617 - A new real estate boom: the rental market

The Spanish real estate market is experiencing a new boom, this time in the rental sector. The average rent for new leases has risen 20.9% over the last year. And cities like Madrid and Barcelona saw record average prices.

This is due to a rise in demand, but also to a drop in supply. That is because many homeowners who had been renting out their properties during the economic slump are now putting them back on the sales market as prices start to pick up again. Added to this is the fact that short-term rentals to tourists has become a more profitable proposition than long-term leases.

All of which is making life more complicated for regular renters.

The National Statistics Institute (INE) offers dramatic numbers: rent levels in 48 provinces are higher than in May 2007. In the 10 most populated provinces, accumulated rent inflation since 2007 is between 5% and 15%.

A study by the University of Barcelona predicts that rent will continue to rise this year at an average rate of 8% in Barcelona and 13% to 14% in Madrid. The study’s author, economics professor Gonzalo Bernardos, explains that during the crisis, the slump in property prices made many owners decide to rent out their properties instead. Between 2007 and 2013, supply grew 65%. But that trend is being reversed now.

“Out of every 10 rental leases that expired last year, six of those properties are now being put up for sale,” he said.

“At play here is the psychological effect on many owners who did not want to sell their properties for less than what they paid for them,” adds José García-Montalvo, who teaches applied economics at Pompeu Fabra University. “In Barcelona there are neighborhoods where prices are back to pre-crisis levels, and so owners would rather sell than keep renting them out. And that drives supply down.”

And while supply is dropping, demand keeps rising. “There’s been a psychological change in many people, who no longer feel that renting is tantamount to throwing away your money,” he adds, citing a long-held belief in Spanish society, where home ownership rates remain very high.

Some people are renting out of need, as banks continue to be strict about mortgage eligibility following the real estate debacle that left the sector with scores of repossessed properties on their books.

Meanwhile, vacation rentals are an added element in the equation. While it is unclear how much of an impact short-term tourist accommodation really has on the rental market, a study commissioned by the city of Barcelona shows that these properties represent 7.7% of the city’s entire rental home supply, and says that they do have an effect on prices.

But business associations and real estate groups deny this impact, and note that the areas where rent has risen the most are not those with the highest number of short-term tourist lodgings. According to these groups, the biggest impact is caused by the thousands of homes sitting empty that are not on the market.



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