Spanish supply of rental housing decreases by 32% in past year

BarcelonaThe outbreak of the pandemic of covid-19 had a direct impact on the rental housing market. Several factors led to an increase in the number of flats for rent in 2020. Among these factors are tourist apartments, which moved into the traditional residential rental market after the tourist industry crashed. Now, however, the situation has gone back to normal. To get an idea of the evolution of rental supply available, in the city of Barcelona, just before the pandemic, Idealista advertising portal had about 12,000 rental homes on offer, a figure that soared to 24,000 in September 2020. Now it has fallen below 10,000.

In fact, according to a study by Servihabitat, one of the main platforms in the sector in Spain, the supply of rental housing decreased by 31.5% between September 2020 and the same month of 2021. In total, according to this study, there are now approximately 91,800 rental homes throughout the State, a figure that is equivalent to what there was in 2019. To get an idea of the evolution, in 2020 there were 2.9 rental homes on offer per 1,000 inhabitants, a ratio that has fallen to 1.9 homes on offer per thousand inhabitants.

The factors that have led to this decrease in supply are, on the one hand, many families' decision to postpone buying a flat. Given the uncertainty of the situation due to the pandemic, many families who were thinking of buying have decided to continue renting. On the other hand, the shift from holiday to residential housing was reversed once the restrictions on tourism were eased and the situation returned to normal.

But the pandemic has not only affected supply. It has also had an impact on demand. Renting had become more widespread in recent years in Spain, but covid-19 has reversed this. In 2021 the proportion of people living in rented housing dropped to 19% of households, the same figure as two years ago. According to Servihabitat's study, the pandemic has much to do with this change in trend for two reasons: the emancipation of young people has been delayed, on the one hand, by economic uncertainty. On the other hand, teleworking has limited labour mobility which, in many cases, drove the rental market.

Juan Carlos Álvarez, director of Servihabitat's property management business, believes that "the pandemic has temporarily slowed the trend towards growth and consolidation that the rental market was experiencing, but this is a temporary aspect". However, new legislation may affect the evolution of the market. "The outlook for this market is highly conditioned by how it reacts to the decisions of public administrations," says Álvarez, who believes that the market "needs legal stability through a state pact that guarantees a framework for action in the medium and long term".

Prices and profitability

But despite these uncertainties about the market, housing continues to be very attractive to investors at a time when interest rates are negative. According to the Servihabitat study, the price of rent in Spain between 2020 and 2021 fell by 6.1%. But there are very significant price differences between areas of high population density and the so-called empty Spain. Thus, the average price in Madrid (1,061 euros per month), Catalonia (1,022 euros), the Basque Country (999 euros) or the Balearic Islands (928 euros), is far from the cheapest communities, such as Extremadura (440 euros), Castilla-La Mancha (464 euros) or La Rioja (553 euros).

The drop in the average rental price has also affected the profitability of investment in flats to rent. The average profitability has gone from 6.8% in 2020 to 6.1% in 2021. But despite the decline, profitability in 2021 still remains above that of 2019 (5.7%) and 2018 (5.6%). Catalonia is still the most profitable region, at 6.3%.

The adjustment of profitability is largely due to the fact that, while rental price has fallen slightly on average, the sale price of flats has remained the same and has even grown. That is, buying a home costs the same or more than it did before, but the owner receives a slightly lower income from renting. "Despite this housing continues to be a safe haven for investors, with a higher and more stable return than other investment products". Servihabitat concludes.