Rent is on the rise in Spain
More and more people are renting their home. In the past 5 years, the percentage of households renting their main home has increased significantly: from 16.1% in 2013 to 17.8% in 2018. This strong demand for rental property has pushed up prices, especially in large cities and tourist resorts, although in the past few quarters there has been a slight moderation. With a view to the future, the demand for rented accommodation is expected to remain strong and, to avoid more pressure on prices, supply will have to grow in line with this demand.
Traditionally, Spanish households have preferred to buy their home rather than rent it. However, the relative share of rented accommodation has been rising year after year: while fewer than 10% of Spanish households rented their home in 2001, this percentage reached 17.8% in 20181. If, in addition to rented accommodation, we also include other types of ownership of the main residence, such as that provided free of charge by a relative, then this figure rises to 23% (the remaining 77% corresponds to households that own their own home). In spite of this considerable increase in renting, its share is still small compared with other European countries. The euro area average is about 30% while Germany, where renting is the most popular, it reaches almost 50%2.
- 1. Data from 2001 according to the Bank of Spain and from 2018 according to the Encuesta Continua de Hogares (ECH) by the National Statistics Institute. Including rented accommodation at market and below-market prices.
- 2. These percentages include accommodation provided rent-free (as well as rents at market and below-market prices) and are taken from the European Union Statistics on Income and Living Conditions (EU-SILC) by Eurostat (data from 2017).
Renting is becoming more popular
The rise in renting is even more evident if we focus on the most recent period, between 2013 and 2018: over these 5 years the increase in the number of rented homes reached 70,400 per year, a higher figure than the net creation of households (63,700 per year) due to the drop in owned property (–31,000 per year)3. Nevertheless, it should be noted that, in 2018, the demand for rented accommodation stalled, a phenomenon which, as we will see below, is partly due to the sharp rise in rents in the preceding years.
- 3. The households living in a home provided rentfree or at a reduced price by another household or company increased by 24,300 on average between 2013 and 2018 according to the ECH.
The proportion of young Spaniards living in rented accommodation has risen considerably over the past decade, partly because their employment conditions are not favourable for buying their own home
Young people rent the most
% of renting households
Although the tendency to rent is widespread across all age groups, it has become most prevalent among young people. As can be seen in the chart, 52.2% of young people aged 16 to 29 were renting their accommodation in 2017 compared with 36.5% in 2008. In fact, young people leaving their parents' home4 tend to rent accommodation mainly because their employment conditions are not favourable for buying their own property. All labour market indicators point to young people being the hardest hit by the economic crisis and, although their situation has improved since 2014, the repercussions can still be perceived in the form of a very high temporary employment rate among young people (56.3% in 2018), twice as high as that for the population as a whole; a higher unemployment rate (29.3%) and more long-term unemployment (35.8%), as well as slower growth in wages among young people.
This trend in renting among the new generations has also been reinforced by a shift in preferences from ownership to use and greater geographical mobility. The fiscal changes introduced in 2013, eliminating income tax deductions for investment in the main residence, also mean that there are now fewer tax benefits to owning your own home.
- 4. According to the Consejo de la Juventud de España (CJE), fewer than 25% of young people under 30 have left their parents' home.
Factors supporting the demand in rented accommodation
The boom in tourism and sharing platforms have also pushed up demand for rented tourist accommodation
The main reason why people rent a property is to live in it. However, the past few years have seen an increase in short-stay rentals for tourism purposes, related to the expansion in the sharing economy and tourism boom. In fact, the number of international tourists visiting Spain has doubled in the past decade and the country is now the world's second most popular tourist destination, only behind France and ahead of the United States. Most of Spain's foreign tourists stay in hotels but an increasing number opt for rented accommodation. Specifically, 11.8% of international tourists rented their accommodation in 2018 compared with 10.7% in 2016, an increase of 1.7 million people in just 2 years (up to 9.7 million).
The boom in tourist apartments is considerably controversial, especially in those cities that receive a large number of tourists all year round, due to the effects in economic, social, environmental and town planning terms but also because of their impact on the residential market. For the moment, a lack of data means it is difficult to thoroughly analyse this issue in Spain5 although the analyses available internationally can provide some pointers. Several studies carried out in the United States have found a limited but positive correlation between the proliferation of tourist apartments on the supply of residential housing and the cost of rent in the long term6. In any case, this factor is likely to become less important in Spain given the more restrictive legislation brought in for tourist apartments and the slowdown observed in the growth of inbound tourism.
- 5. See Ortuño, Armando and Juan Luís Jiménez, “Las viviendas turísticas ofertadas por plataformas on-line: Estado de la cuestión” Documento de Trabajo 2019/04 FEDEA.
- 6. Barron, K., Kung, E. and Proserpio, D. (2017), “The sharing economy and housing affordability: evidence from Airbnb” and Horn, K. and Merante, M. (2017). “Is home sharing driving up rents? Evidence from Airbnb in Boston.” Journal of Housing Economics, 38, 14-24.
Rents are soaring
Annual average growth between 2014 and 2018 (%)
In Barcelona and Madrid, rents increased by 40% between 2014 and 2018 according to real estate websites
The sharp rise in demand for rented accommodation has driven up prices7. This is evident from the available indicators produced by various real estate websites: across Spain, rents rose by between 5% and 9% year-on-year on average from 2014 to 2018, with a cumulative increase of almost 40% in the cities of Barcelona and Madrid. Although this upward trend has eased since 2018, especially in Barcelona, this city has the highest rents (about 15-17 euros per square metre on average according to different sources) while in Madrid the price is around 14-17 euros per square metre on average. However, both cities have notable differences in rents depending on the district and neighbourhood, as can be seen in the maps below.
- 7. There is currently no official reference that helps to monitor the trend in the rental market. Recently, the government passed Royal Decree-Law 7/2019, creating a state system of benchmarks for rented accommodation prices.
Rent per square metre
The sharp rise in rent over the past few years has resulted in high prices in many zones. Consequently, the proportion of households with problems in paying their rent has remained high in spite of the economy recovery. According to Eurostat, 42.1% of households that rent their home at market price allocate over 40% of their disposable income to paying rent (compared with 24.9% in the euro area).
Supply is adjusting to the growing rental market with the Build to Rent model
On the supply side, higher rents are encouraging real estate firms to enter the market that specialise in managing buildings completely aimed at rental accommodation. The development of these “turnkey” or Build to Rent (B2R) projects means that the whole block is sold to a single owner who manages and monetises the building by renting out the apartments. This segment has aroused the interest of institutional investors (pension funds, real estate investment trusts, etc.) looking for long-term investments with much more attractive returns than those offered by government bonds, for instance. This new supply will help to professionalise a sector which, in Spain, is still highly atomised8.
- 8. Although there are no official statistics, it is estimated that only between 2% and 4% of rented accommodation is owned by institutional investors.
On the one hand, the factors that have boosted demand in rented accommodation will tend to dissipate as the economic situation improves. For example, young people forming a household in rented accommodation over the past few years should begin to buy their accommodation as their employment conditions improve. However, other forces are acting in the opposite direction, suggesting that demand for rented accommodation will continue to grow. The population projections produced by Spain's National Statistics Institute point to demographic growth over the next few years being primarily due to growth in the foreign population9. Given that households with members born abroad are more likely to rent (around 60% compared with 12% of households in which all the members are Spanish), the net inflows of immigrants expected over the coming years should continue to push up demand for rented accommodation. Specifically, we predict this could remain at around 70,000 homes per year, similar to the level observed between 2013 and 2018.
Should this scenario come about, it will be necessary for supply to increase to prevent the greater demand from driving up rents too far. The trend in the rental market will also be greatly affected by the public policies implemented to encourage affordable and social housing.
- 9. According to the population projections produced by the National Statistics Institute, between 2019 and 2025 around 135,000 households per year will be created and the population will grow by 3%, reaching 48 million people. The population born in Spain will decrease (-1.2%) while that born abroad will pick up (+29.8%).