The mayor of Deià, Mallorca: "I have to share a house"
The price of housing soars by over 70% in eight years in a perfect storm triggered by foreign buyers, investment funds and tourist rental
PalmaDeià is one of the most beautiful villages in Mallorca. It sits in the middle of the Tramuntana mountain range, with steep streets lined with traditional stone houses next to small cove. This paradise attracts thousands of tourists every summer. It is also the most expensive village on the island. A square metre goes for over €5,700 and there is almost no housing for rent. A search on Idealista, a website that hosts most sale and rental offers, only brings up two villas: one for €2,500 per month and the other for €6,000. In Deià, even the mayor suffers the consequences of these prices: "I have to share a house because I can't afford it alone," admits Lluís Apesteguia, who is 37 years old. Buying is not a possibility either. "Unthinkable for a person with a normal salary," he laments. On Idealista, the cheapest house for sale in the village is offered for €340,000.
Prices, in recent years, "have shot up ro the stratosphere," says Apesteguia. And there are fewer and fewer people living all year round: a decade ago there were 750 inhabitants while now there are 630. Paradoxically, "there have never been so many houses," adds the mayor. New builds have been directly linked to tourism.
In Deià there are 800 holiday rental places and 400 hotel rooms, that is, two tourist places per inhabitant. In summer, the population quadruples and reaches 2,500 inhabitants. "We are going through a textbook process of gentrification," says Apesteguia.
Deià is the most expensive municipality in Mallorca, when it comes to buying a house, but it is not the most expensive in the Balearic Islands. The most prohibitive is in Ibiza: Sant Joan de Llabritja, where a 70 square meter apartment costs €433,720, according to data from Idealista. In fact, the Balearic Islands is the region in Spain where the price of housing has increased the most, both for buying and renting. According to the Spanish National Institute for Statistics, in the last five years purchases have increased by 10% and rentals by 13%. Data from Idealista are even more drastic: they indicate that since 2013 there has been a 71% increase in the sale price per square metre, which has gone from €1,964 that year to €3,353 in April. Rents, in the same period, have gone up by 76% on average throughout the Balearic Islands. To live a month in an 70-square metre apartment which in 2013 would have cost €525 now costs €924.
With these prices Toni Amengual can't even afford a room. "I get paid €460, where am I going to rent anything? Just for a room they ask for €300," he says. He is sixty years old, has been receiving a permanent disability pension for 27 years and lived with his mother until she died. Now he lives in a tool shed on the outskirts of Inca. "I have no drinking water and when it rains I get wet," he says. He showers and feeds himself at the town's Caritas soup kitchen, and a solar panel allows him to charge his cell phone.
Buyers from abroad
A couple from Artà arrives home after spending a few weeks away from Mallorca. When they open the door they find two leaflets advertising German real estate agencies offering to value and, if appropriate, buy their house. This is not peculiar to Artà: it is increasingly common throughout the archipelago. For more than half a century the Balearics have been fashionable for tourism, but in recent years more and more foreigners have been buying houses, and real estate agencies have detected the business opportunity. This phenomenon is key, along with the arrival of investment funds and the increase in tourist rentals, to explain soaring housing prices, a perfect storm that makes it increasingly difficult for islanders to find a decent home.
Foreigners have bought 35.4% of the housing sold during the first quarter of this year, according to the Association of Registrars. Last year they took part in 40% of the 17,502 sales that took place in the archipelago, according to the Balearic National and International Real Estate Association (ABINI). In fact, only during 2021, €2.64bn of foreign origin were invested in the Balearic Islands to buy housing.
The president of the Association of Real Estate Agents of the Balearic Islands (API), Natàlia Bueno, admits that the island market has become very attractive "because it offers very good profitability for rentals", even in Menorca, where a significant increase in the purchase of homes by French people has been noticed.
One of the keys is the difference in purchasing power. According to a study by Growth from Knowledge platform in 2021, purchasing power in Spain is €14,709, after taxes and contributions. This is 2% (346 euros) below the European average. But countries with a strong presence in the purchase of real estate in Mallorca have a much higher purchasing power per capita: in Germany it is €23,637; in the United Kingdom, €23,438; and in France, €20,662,
In the first four months of the year, investment funds have allocated just under €1bn to Spain. This figure, according to GN Group advisory board member Inma Ranera, is very close to pre-pandemic figures, when over €4.5bn were invested per year. In 2021, the funds allocated €3.18bn to Spain, 17% of which (€540m) went to the Balearic Islands. The funds have been gaining weight in housing since the 2008 crisis, because they kept the properties that went to the banks when families could not pay their mortgages.
One of the most famous operations was carried out by CaixaBank, which sold its estate portfolio to Blackstone for €800m. But the funds did not put all these properties on the market, explains Universitat de les Illes Balears (UIB) geography professor Jesús González: "They keep them because that way they raise prices". "In the Balearic Islands there is a perception that there is a lack of housing," he adds, "but it is wrong: what is lacking is housing on the market."
It is not known how many of the homes in the archipelago are in the hands of investment funds, but UIB geographer Sònia Vives, an expert in urban inequalities, points out that evictions numbers can be an indicator. According to Palma's Anti-Eviction Office, in 2015, there were seven evictions from investment fund properties in the city. In the first four months of 2022, there were already 74.
Investment funds have even started to operate in Son Gotleu, Palma's poorest neighbourhood and one of the most impoverished in Spain, according to real estate agent José Gómez. API president Natàlia Bueno agrees and adds that in auctions state-owned apartments are being bought in the neighbourhood above market price. And this is also happening in other low-income neighbourhoods in the city, such as Pere Garau and the Polígon de Llevant. "Before," says Bueno, "you had a lot of work to sell an apartment for €50,000 in these areas; now, you can hardly find them for under €70,000.
In Deià the vast majority of holiday rental houses, Apesteguia assures, have been built for this purpose, especially since the beginning of 2000s. But in other places in Mallorca many families choose to rent houses they have inherited or that they use as a second residence during the summer season. The Balearic Islands Association of Tourist Rental Housing (Habtur) claims that this is the case for 90% of its associates. Maria Mas is an example. She has been renting her apartment in Illot for 15 years, from April to October, through a German real estate agency "to pay taxes and pay for her daughters' university fees". According to a report by the Steinbeis Transfer Institute's Center for Real Estate Studies, the price of holiday rental accommodation has risen by 4.5% since last year, despite the fact that in some areas, such as the east of Mallorca, it has increased by 10%.
With the tourist season, offers of unsuitable living quarters are multiplying. Data from the Housing Department allow to see the tip of the iceberg. At the moment, 27 offers of substandard housing are being investigated, and since the beginning of the year, 31 sanctioning proceedings have been started, 16 of which have resulted in fines totalling €84,000. Meanwhile, the waiting list for the Institut Balear de la Vivienda to access social housing continues to grow: from about 4,000 people registered in 2019 to over 7,600. Francina Armengol's government assures that by the end of its term over 1,050 properties will have been added to the public housing stock, making it 66% larger than it was in 2015. But the process is slow: in seven years she has handed over the keys to 47 apartments.
"If I leave my parents' home, I have to choose between renting or eating," says Henry Barros, who is 27 and lives with his parents in Palma. He studied Spanish and Dental Hygiene and works as a hygienist in a clinic. Only 16% of islanders between 16 and 29 have left their parents home, according to the latest Report of the youth of the Balearic Islands from May. And the percentage has fallen five points in three years. "We had been told that thanks to studying we would live well. It's not as nice as they said it would be," Barros laments.