Economy | Access to housing is hardening

Economy |  Access to housing is hardening

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More expensive to finance if you want to buy and more difficult if you just want to rent. That Access to housing in Spainwhich has never been easy for families, has intensified in recent months due to price and interest rate increases: The 0.5 point hike agreed by the European Central Bank, which has already been largely discounted by markets, is nothing more than a symbolic milestone that marks the definitive end of cheap mortgages. And also the alternative to buying, renting, demands more and more commitment from Spanish households.

First, because In both cases, prices have increased significantly in recent months: according to the monthly reports of the real estate portal Idealista, rent is up 5.6% so far this yearwhile Buying a house is now 2.5% more expensive that in December.

But they are lower than inflation they bring prices per square meter closer to their historical highs and raise the hurdle that households have to overcome, especially young people, to get a home. Because if you put these prices in relation to income, you can see that it is becoming increasingly difficult to open the doors of a house.

More expensive mortgages

If you intend to buy that effort ratio that households must assume is increasingly relentless. The Bank of Spain’s latest calculation says an average household spends 34.3% of their disposable income paying off their mortgage in the first year, while it didn’t reach 31% before the pandemic.

The Bank of Spain itself recommends that the mortgage payment does not exceed 35% of income, so the rate is already close to the recommended limit. And as the Interest charges continue to rise – the ECB is preparing another hike in September, likely by a further 50 basis points, and Euribor, the main benchmark interest rate for mortgage loans, is already close to 1% – these efforts will be greater.

“The impact of interest rate hikes will be huge,” he says. Paloma Taltavul, Professor of Applied Economics at the University of Alicante and specialist in the real estate market“because it greatly increases the size of monthly payments on new mortgages and makes accessibility much more difficult.”

Taltavull and his team develop an accessibility rate that is methodologically different from that of the Banco de España — it takes into account, for example, not the household’s income but that of its main breadwinner — but which shows a similar trend. For a 20-year mortgage loan, the percentage of income going into the installment in the first year is 35.2%, compared to just over 30% at the end of 2019and if the loan is extended to 30 years, it is reduced to 25.4%.

barriers to entry

But experts agree on that it is not the monthly mortgage payment that is the main problem, but the barriers that families must overcome to access this financing. A significant one in particular previous savings: Banks finance up to 80% of the value of the house, so it is necessary to have funds to pay the remaining 20% ​​and all the expenses related to the sale and the loan such as taxes, notary or home valuation.

“Today, buying a house is almost something for the rich,” he says. Joffre López, researcher at the Barcelona Urban Housing Observatory and co-author of the biannual reports prepared by the Spanish Youth Council’s Observatory for Emancipation. “Although mortgages have gone up, we’re not at the levels of 2007 or 2008. But people who need their first home typically have an irregular income, have no savings, and their biggest stumbling block is anything they ask of you, before signing the mortgage. from guarantees to insurance. It’s an endemic problem.”

On top of that, since the bursting of the real estate bubble Banks are much more restrictive when it comes to lending. The result, as Paloma Taltavul points out, is a very constrained mortgage market that has “not yet recovered from the collapse” of this crisis: in 2021, at its best in a decade, almost 418,000 mortgages worth €57,634 million were issued. Euro when they were triple in 2007 with 1.2 million loans worth 184.427 million.

The consequence of all these difficulties is this Many people are forced to rent their homes without wanting to. “The trend towards renting should be optional because of a sociological shift, but in reality there is a forced shift towards renting,” he explains. Carolina Roca, President of the Association of Real Estate Developers of Madrid (ASPRIMA). “There’s a small part that’s reacting to the fact that we’ve had a rental decision deficit in Spain, but most of that is due to the impossibility of access to buy because of those barriers to entry.”

More effort when renting and buying

And it is that although families’ vital options may lead them to prefer renting, From a purely economic point of view, the cost of renting is greater than that of buying.. The most recent report from the Emancipation Observatory, as noted earlier, indicates that the cost of accessing a mortgage-financed home for a young household — meaning its members aged between 16 and 29 — ranked first every semester 2021 from 26.4%, while rent accounts for 42.2% of your income.

This effort is also growing, as shown by a report prepared in June this year by the consulting firm Ernst & Young for ASPRIMA, which compares what percentage of income had to be used to pay rent in 1997 and 2020. His conclusion is that for a worker, the output had doubled in those two decades and accounted for more than two-thirds of his salary. And for a retiree, an average rent already means more than their entire income.

Although this is more onerous, many families who do not have access to mortgage financing are forced to rent, prompting them to compete a market with “a scarce and expensive supply”, in the words of Joffre López, especially in the big capitals. Carolina Roca also points out that despite rising demand, Spain “lacks a real estate structure dedicated to professional letting. We weren’t ready to take that surge, which creates tensions.”

In this sense, all the experts interviewed agree One of the underlying causes of the difficulty in getting a house is the lack of supply, both for rent and for sale. Taltavull points out that housing construction has declined “brutally” in the last decade and Roca stresses that the construction of government-protected housing that allows for an affordable price has come to a virtual standstill in the last 12 years. “There is no offer of affordable housing, neither public nor private”notes Lopez.

A problem also for the pension

The supply shortage is also evident when observing home sales, which used to be almost 50% split between new and resale homes and is now monopolized by resale homes: So far this year, 81% of sales have come from second homes. Hand houses and only the remaining 19% are new houses, which indicates high real estate turnover despite demand for apartments.

The result of all this is this Spaniards are finding it increasingly difficult to gain access to housing and when they do, they usually pay high costs. Are most affected teenagerswho have the lowest rate of emancipation so far this century – less than 15% manage to become independent before the age of 30 – and who have to resort to formulas that do not always meet their needs, such as shared rent.

Data from the National Institute for Homeownership Statistics shows that Since 2012, young people under the age of 30 have mainly been renting, which is also on the rise in the age group between 30 and 44 years, and even among the older strata of society. A trend that anticipates a problem in a decade or two, because home ownership is also a savings vehicle.

“It’s a vicious circle: in the rental market, young people can’t save, especially when prices go up, and they’ll never be able to find the previous amount to buy again,” says Paloma Taltavull. Y if they have to retire, their pension will barely cover the rentAs Carolina Roca warns: “Right now there is a large majority of retirees who don’t have to spend a single euro of their pension on housing.

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