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Industry warns that new construction in Spain is not keeping pace with demand growth

Last Friday, at the El Beatriz auditorium in Madrid, several experts analyzed the Spanish real estate market. Two round tables were held during the day: one on the macroeconomic context until 2023 and the other on its impact on the real estate sector. 

Judit Montoriol, chief economist of the economic department of Caixabank Research España, and Carlos Thomas, deputy director general for economics and research at the Bank of Spain, took part in the first session, moderated by Miguel Solchaga, from the Notary Statistics Centre. 

Thomas explained that inflation and interest rates are rising, and this way the characteristics of the macroeconomic environment affect investment. Confidence indicators regarding the economic outlook increased after data from the Bank of Spain showed an improvement in the economic outlook for 2023. However, interest rates have risen sharply since the middle of last year, which has had a downward impact on investment

According to him, the negative impact of interest rates on investment will start to appear in the second and third quarter of this year. During this quarter the negative effect on investment will prevail. However, Thomas pointed to another important factor that could stimulate investment this year: the European NextGen fund, which could provide a significant increase in GDP of almost two percentage points.

Regarding the macro context of the real estate market, Montoriol commented on parameters such as housing supply, which closed 2022 with 110,000 new building permits. The magnitude associated with the creation of new households (210,000 new families according to the INE) is a very clear indicator of the shortage of housing under construction. This has been the situation for at least three consecutive years. 

The real estate and construction sector now accounts for almost 5% of the Spanish economy's GDP, slightly below the European average of 5.4% and well below the peak of 12% reached in 2006. According to Montoriol, something in between is reasonable. 

Regarding price dynamics in this macroeconomic environment, Montoriol has pointed to a significant slowdown in house price growth in 2022. Although we are experiencing positive growth (according to INE and MITMA), the trend is slowing. 

Caixabank Research, for its part, expects the impact to be felt mainly in sales figures, which will return to levels close to historical ones. 

When comparing Spain with other countries, the Spanish real estate market is very different from that of other developed economies. For example, New Zealand, the USA, Canada or the Netherlands, where house prices have risen by more than 40% without any increase in income, according to Thomas. This situation has created a housing affordability crisis in these countries, where price adjustments have been taking place since the middle of last year. 

However, no such imbalance has occurred in the Spanish market. According to the event's own figures, households have not taken on debt and those that have, for the most part, have fixed interest rates.

 

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