Spain | The law of unintended consequences: housing market version

Summary

While many economic policy decisions are made with the best intentions in mind, things do not always go as planned. Numerous examples of this can be found in the real estate market.

Key points

• Key points:
• The changes made to rental housing regulations were meant to cushion the impact of spiraling rental prices.
• However, these changes appear to have had a negative impact on investment within the sector, which may push up prices even further going forward.
• Had investment continued to grow like in the period previous to the pandemic, it now would be around 30% higher than the level observed in 2019. However, investment in housing has barely managed to return to the levels seen five years ago. This trend diverges from what can be seen across the wider eurozone, where this same indicator increased to 10% above 2019 levels at some point.
• Another example is the introduction in the city of Barcelona of the rule that 30% of new construction must be set aside for social housing. As a result, new construction permits for residential property in the municipal area have fallen by almost 80% compared to the level in 2019.
• The decision to establish “stressed areas” for housing purposes and the fixing of prices is another example of policies with unintended consequences.

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