The scarcity of housing not only breeds social discontent, particularly among young adults unable to move out and families grappling with skyrocketing rental costs. It also threatens to become a bottleneck for economic growth.
Market tensions in the real estate sector are particularly acute in major urban areas and economically thriving regions. These territories serve as the primary engines of economic growth, a phenomenon sustained either by mobilizing more labor force or by enhancing productivity. Over the past decade, the active population has surged by 7% in provinces with higher urban density, facilitating the expansion witnessed in these major zones. This growth rate is more than double that observed in the rest of the country, showcasing diverse territorial trajectories. For instance, popular tourist provinces like Málaga see a significant influx of working-age residents.
The housing shortage can disrupt this dynamic due to its adverse effects on labor mobility. Signs of this phenomenon are already visible in tourist destinations like the Balearic Islands, where there has been a decline in the number of young people aged 16 to 24 over the past year. Moreover, exorbitant housing prices act as a deterrent for unemployed individuals to relocate to areas with better job opportunities. Various analyses underscore the significance of this circumstance in explaining structural unemployment.
Undoubtedly, the dissuasive effect of residential scarcity on the mobility of highly qualified professionals is limited. These workers can offset a substantial portion of housing prices through their salaries, although this would disadvantage companies. However, over time, essential personnel for the productive fabric of dynamic locations, facing reduced purchasing power due to the housing crisis, will demand compensation regardless of their qualifications—without improvement in purchasing power. This would lead to a loss of competitiveness, a crucial factor in the current buoyancy of the Spanish economy.
Taking a longer-term perspective, the situation of housing shortage resembles that of a monopoly, as per a recent study by the Commission. This is because the housing sector effectively gains greater market power, absorbing more resources at the expense of the rest of the economy. This results in a compression of demand for non-residential goods and services. Productivity could also be affected by the expansion of the housing sector compared to more productive activities. Additionally, the study warns of the risk of weakening investment in equipment. The context of high prices is also prone to the emergence of credit bubbles, although in this case, regulations have been tightened, reducing this risk at least in Spain.
In summary, an emerging bottleneck looms over the economy, and the solution can only come from the supply side. Converting vacant commercial spaces, restrictions on vacation rentals, or improving connections with areas near dynamic urban centers are relevant measures, but their effect tends to dissipate over time. The main obstacle lies in the lack of land designated for residential construction. Therefore, it is a matter of economic policy, which can be addressed responsibly by different administrations and the sector itself to avoid situations of surplus housing in areas with low demand. The challenges are real, but they pale in comparison to the benefits for the economy and society of a sustainable cycle of residential investment.
Investment Insights: According to the latest INE revision, gross fixed capital formation in construction, which includes housing as well as other buildings and structures, declined in the closing quarter of the year for the second consecutive quarter. While the first half of 2023 was more prosperous, construction investment levels are still far from pre-pandemic levels. Comparing the last quarter of 2023 with four years prior, the deficit reaches 4.5% for total construction investment and 7.9% for the housing segment.