Thursday, May 03, 2007

Spanish Property Boom Loses Fizzle

Hugh Pavletich co-author of the annual International Demographia Report on Housing Affordability, has referred to recent concerns about the ending of the 15-year long Spanish property boom.

With a population of 40.3 million Spain put in 800,000 residential units during 2006 - a build rate of nearly 20 per 1000 population per annum.

If Australia built at the same rate - it would have put in 400,000 units (actual 145,000 - build rate 7 per 1000) whilst New Zealand would have put in 80,000 (actual 25,000 - build rate 6 per 1000).

Spain - like Ireland (92, 000 units during 2006 - build rate 23 per 1000) has been playing "catch up".

Hugh Pavletich says that the two examples of Spain and Ireland illustrate how sufficient supply is the only way to subdue prices. Compare this to the United Kingdom with a population of 60 million only putting in place 195,000 new residential units (appalling build rate of 3.25 per 1000). For a 100 year life of residential units a "floor" replacement build rate of 3.57 units per 1000 population annually is required.

It could be that the British planners are in the process of transferring the British population to Spain and elsewhere. Are we seeing the start of The Great British Migration, due to the "British housing famine"?

The Economist magazine says that helped by low interest rates since it joined the euro in 1999, Spain has been erecting houses at an astonishing rate. Last year it built 800,000, reckoned to be more than France, Germany and Italy combined. Economists in Madrid forecast that the house-building boom will keep slowing until the new-build rate more closely matches the rate of new household formation, around half a million a year. House-price rises are already slowing, albeit not brutally.

They peaked at about 18% a year in late 2003, and are now running around 7%, with some expecting them to slow further. Around the outskirts of Madrid there are new property developments where work appears to have stalled.

The Bank of Spain has said in recent years that house prices were 35% overvalued.

Irish owners of an estimated 75,000 Spanish properties have reason to be concerned as selling second-hand holiday properties in Spain is far from easy, even during the boom times.