Barcelona and Madrid have had a housing bubble since 2023.

BarcelonaBarcelona and Madrid have been suffering from a housing bubble for two years, according to a new study. The causes include several factors, from population growth due to the arrival of immigration and the lack of public and private housing construction to the cheapening of credit and the entry of speculative investors.

In the case of Barcelona, ​​​​the study detects three episodes of bubbles in the rental market: from July 2015 to February 2016, from June 2016 to December 2017, and from August 2023 until now. In the case of the home buying and selling market, two are detected: from July 2015 to October 2018 and from March 2024 to December of last year, when the available data ends. However, the fact that housing prices are growing at a record pace this year suggests that the bubble is still in effect.

The study—conducted by Marta Gómez-Puig, professor of economics at the University of Barcelona; Simón Sosvilla Rivero, professor of economics at the Complutense University of Madrid; and Adrián Fernández Pérez, professor at University College Dublin—analyzes the rental and sale markets for apartments in both cities from 2007 to December 2024 and finds several cases of bubbles.

Experts consider a market to be experiencing a bubble when prices are "disconnected" from fundamental economic variables; for example, "when housing prices rise much faster than wages or economic growth," the study says. Likewise, in the case of the real estate sector, these tend to occur during times of interest rate cuts (such as last year in the eurozone) and when apartment prices are detected rising much more than rental prices, implying "speculative dynamics." In fact, "the growing presence of speculative investors, who acquire properties not for personal use but to profit from future resale or rental income, reinforces the risk of overheating" in the market, the study notes.

However, Marta Gómez-Puig, co-author of the article, explains that "not all bubbles manifest themselves through price increases," but can be negative: with price reductions. This was the case between 2011 and 2013 in both Barcelona and Madrid, coinciding with the financial and debt crisis.

Two years of bubble

"The current real estate bubble began in early 2023," Gómez-Puig asserts at the ARA. "Among the main causes is the increase in population," partly due to "the arrival of immigrants after the lifting of restrictions" against COVID, she points out. According to the professor, this population increase "caused a sharp increase in demand in the rental market" that coincided with interest rate hikes by the European Central Bank. When interest rates fell again in 2023, it coincided with a new bubble episode.

"The fact that housing has become an investment asset in recent years has been key to rapid price increases and the emergence of bubbles," the economist notes. "When interest rates fall, investors find less profitability in safe assets like bonds, so they seek more lucrative alternatives, such as the real estate market," which "increases speculative demand and pushes prices up," he states. In this regard, the authors add a nuance: "The impact of low interest rates on the formation of bubbles is usually temporary. While they are a trigger, they are not the only cause: structural factors, such as shortages of supply or demographic pressure, also play a fundamental role," comments Gómez-Puig.

In fact, another key factor explaining the current rise in housing prices is that "the supply of new housing was unable to grow at the pace necessary to absorb" increases in demand, which generated "persistent imbalances in the market," concludes Gómez-Puig. Furthermore, "unlike previous bubbles, this time, the high pressure on rental prices gradually shifted to the sales market, accelerating the rise in housing prices there as well," he adds.

Tourism—in this sense, the study does not analyze seasonal rentals—and the arrival of students and immigrants (both foreign and Spanish) have played an important role in the increase in demand, exerting "constant pressure on prices, especially in the rental market, where the presence of immigrants is higher," according to Gómez-Puig. In this regard, "this demand has not been accompanied by a proportional increase in supply, keeping the probability of bubble formation high," he says.

However, the study points out that "an increase in tourists staying in hotels does not put pressure on the market, but rather contributes to its stabilization, especially in Barcelona," since if tourism grows more than hotel capacity, "many visitors opt for short-term tourist accommodation (such as Airbnb), which affects both their trip and their residence." the purchase and sale prices," explains Gómez-Puig.

In Madrid, the bubble cases are not the same, but they are very similar to those in Barcelona. This is due, firstly, to the fact that many policies (especially fiscal) are shared because they depend on the State, as is the case with the labor market, which is highly integrated. Furthermore, "a mirror effect is observed: trends in one city often anticipate or reinforce similar movements in the other," indicates the UB economist, who recalls that "certain profiles of investors and large operators act in a coordinated manner in both cities."

The study, available in the repository of academic articles Social Science Research Network (SSRN) and titled The Classic of Housing: Bubbles in Madrid and Barcelona's Real Estate Market (The Housing Classic: Bubbles in the Real Estate Market of Madrid and Barcelona) analyzes the markets of the two largest cities in Spain using an economic bubble detection model. "We use a model that analyzes the evolution of housing prices month by month and allows us to identify whether, at any point, they began to grow disproportionately and rapidly," explains Gómez-Puig. "If the increase is too rapid and sustained, the model flags it as a sign of a possible bubble," thus allowing us to know "with considerable precision when each episode of this type begins and ends," he adds.

The highest price in history

The publication of this study coincided with an important moment for the housing market in Catalonia: last week, it was announced that apartment prices had surpassed their all-time high, set in the second quarter of 2007, at the height of the real estate bubble. This is because, according to the National Institute of Statistics (INE), housing prices in Catalonia have increased by 11.7% in just one year. This increase is also the highest since 2007 and represents two consecutive quarters—the last in 2024 and the first in 2025—with record growth, as the increase was already recorded in the last three months of last year. This record was surpassed a year ago, in the first quarter of 2024, but it must be taken into account that housing prices across the country had not reached a peak as high as that in Catalonia during the bubble.

This milestone is mainly explained by the purchase of second-hand homes, which in October 2024 surpassed pre-crisis records for the first time in 2024. However, a significant portion of demand, such as foreign buyers, companies, or those who have drawn on savings, including family members, has continued to access, which has unbalanced mortgages and the number of transactions. Furthermore, according to some experts, the shortage of rental supply, especially in cities like Barcelona, ​​​​has pushed many people to consider buying a home earlier than expected. Also playing in its favor is the safe value that housing has acquired in the face of a volatile market that is less profitable than a rental apartment in Barcelona.

While 2022 was already a record year for the buying and selling market, in 2023 the market continued with strong dynamism And in 2024, more transactions were registered than the previous year, just when mortgage credit began to become cheaper, since the ECB initiated a reduction in interest rates in June—exactly one year ago—that is still in effect. The forecast is that in 2025, prices will continue to grow even more, both because demand does not seem to have been exhausted, and because of the downward trend in rates, which It already makes mortgage loans cheaper and has led banks to compete for customers with the best mortgage offers.

Multiple solutions

Given this overheating real estate market, what solutions exist? "Any truly effective housing policy should prioritize the rental market, since this is where the main current tensions are concentrated and because these ultimately impact the sales market," says Gómez-Puig. In this sense, public intervention can be a tool: "The promotion of social rental housing can act as a buffer against speculative pressure," he says.

However, these measures are not sufficient, and in the opinion of the study's co-author, "a broader and more sustained strategy" is necessary. "It is essential to promote the construction of new housing, both public and private, especially in areas of high demand," says Gómez-Puig, who also advocates for "policies that encourage mobility to areas with lower population density and pressure, through improvements in transportation, services, and infrastructure." This would ease demand in "stressed markets like Madrid and Barcelona" and could "curb the dynamics that fuel real estate bubbles," the professor points out.