Home ownership versus renting in Spain
Posted by Landlord July 05, 2007
The two main objectives of the housing ministry, created by the newly elected government of José Luis Rodriguez Zapatero in 2004, were to slow down the rise is house prices — and thus to avoid the financial and economic consequences of a property bubble — while at the same time increasing the scarce number of properties available for rent.
The strategy has proved the correct one to follow: more rented accommodation is needed for those unable to afford to buy a house in a market where prices have soared since 1995, when the present housing boom began. Slowly; haltingly, a slowdown in house prices is becoming evident, albeit amid fears that a collapse is still possible.
That said, it is also becoming evident that the government’s policies to boost the number of rented properties on the market is doomed to fail. In 2006, just 11.25 percent of Spanish families lives in rented accommodations, lower than the 11.4 percent in 2001. In the rest of Spain’s European Union neighbors, the average is 38 percent, and in Germany, it rises to more than 50 percent.
The government is playing down the failure of its policies. Housing Minister Maria Antonia Trujillo says that 420,000 new rental contracts have been signed since 2004, but the figure seems unlikely to make much of an impact in percentage terms.
Some attribute the low number of rentals to Spaniard’s traditional preference for home ownership. At the same time, property has become of means of investment for many, the result is that demand for housing is higher than it should be, given its high cost.
The plain truth is that neither tradition nor our appetite for investment explain the shortfall in rented accommodation, given that demand continues to rise.
The most plausible explanation is that on the one hand, the number of properties available for renting is still very low, a fact that can largely explained by most people’s belief that renting out a home is risky. If property owners could be given better guarantees under the law, coupled with fast-track legal action against tenants who do not pay their rent, then the number of properties available to rent would rise.
There is another factor that prevents people from renting: the comparatively high price. Most people belief that for more of less the same cost as renting they could pay a mortgage. This is a perception that might as well change in 2008, when the accumulated effect of multiple interest rate hikes begins to make itself felt.
- Source: Doomed to Failure, Editorial, El Pais, English edition published with the International Herald Tribune, July 2, 2007
