Spain's Housing Shortage

This is another blog in which I dig deeper into one of the topics covered in my recent report into the Spanish Property Market. This blog focuses on the background to Spain’s chronic housing shortage, which shows no signs of improving in the near future. I think today’s overseas buyers need to be aware of what’s gone before - it helps them understand why there might be some resentment against foreign property buyers, although I think it is a minority view and politically motivated. 

I often wonder how many people involved in Spain’s overseas property market hotspots today were around in the run-up to the 2008 global economic meltdown. As one of those who lived and worked through it, I can make realistic comparisons between the property market then and the market today, in a way that more recent arrivals cannot and context matters when analysing today’s housing shortage in Spain. The fact is building has restarted in parts of Spain — but it is recovery from a collapse, not a return to excess.

Many, but not all, economies around the world were affected to some degree post-2008, while in some it was catastrophic. Spain was one of the worst affected, even giving the 2008 experience and its aftermath a name - la Gran Recesión - to describe the severe, prolonged economic crisis, the effects of which are still being felt today. Understanding what happened helps explain where the property market is today and why there is an ongoing housing crisis of under-supply, nearly twenty years later.

Spain was so severely impacted because of its over-reliance on a decade-long building boom. The bubble burst when the global financial crisis kicked in, and at that time, 12.7% of Spain’s GDP was related to the property sector.  By 2015, it was down to 5%. Unemployment hit 27% nationally but was much worse in some regions, and young people were hit especially hard, with rates as high as 60% in some places. It is estimated up to 500,000 Spaniards emigrated in search of work..

Even as employment improved, few contracts were permanent. Of the four million registered labour contracts in Andalucía at the end of 2015, only 4% were permanent contracts. Unemployment only dipped below 10% in January 2026 (to 9.9%), the first time it’s been below that level since the first quarter of 2008. But it’s not the same everywhere. In Andalucía, it remains at 14.7%, and in a few regions, it actually rose during 2025. While dipping below 10% has to be good news, it’s taken 18 years to get there. For a bit of perspective, the post-2008 peak in the UK occurred in 2011 at 8.4%, at that time the highest level for 17 years. 

How the Banking Crisis Crippled Housing Supply

So what’s this got to do with Spain’s housing shortage in 2026? I believe there are two main factors: firstly, the threat of the collapse of banks and, secondly, the consequent disappearance of Spain’s construction industry. Post-2008, Spain’s banks were near insolvency, drowning in toxic assets, unable to lend until their balance sheets were cleared. Interestingly, the only other European country that came close to Spain’s catastrophe was Ireland, with banks overwhelmed by  bad debts, mainly derived from a similar property bubble, linked to cheap credit and speculation. 

The Spanish government was particularly slow to realise the hole it was in was so deep it was past time to stop digging. It wasn’t until mid-2012 that Spain admitted defeat, taking a €100 billion bailout from the E.U., overseen by the ECB, to recapitalise the banking sector. In contrast, Ireland had requested similar financial support as early as 2010. One of the conditions of Spain’s loan was the establishment of a ‘bad’ bank, into which the problem property loans were transferred. SAREB was the result, and from 2013, it acquired in excess of €60 billion worth of properties, the vast majority of low quality in second-rate locations, which it has been disposing of for the last fifteen years. 

In the meantime, lending to constructors, developers, and individuals more or less froze until 2015. Without finance, construction shrank by 95% across Spain. At the peak of the building boom in 2006, building licences for 735,000 units were approved in Spain, of which 21,000 were in Málaga province, then, as now, one of the hotspots of overseas activity. In contrast, only 728 were approved in 2014, a fall of 96.2%. Approvals in 2025 were for 9,474 units in Málaga, confirmed by the province’ s College of Architects, and a projected 125,000 total across the country, still to be confirmed. Definitely an improvement, but there’s a problem. Bear in mind that licence approvals today won’t translate into completions in the short term - many won’t be sales-ready until 2027/28, at best. In the meantime, the supply shortfall is getting worse while demand increases. Mortgage approvals in 2025 were the highest for 15 years. 

In October 2024, the Bank of Spain estimated Spain lacked 600,000 properties just to cover new household formation since 2021, when it says the demand/supply ratio became seriously uncoupled. New household formation is currently around 250,000 each year. So, with roughly 100,000 units completed annually since 2024, the cumulative shortfall is getting worse, not better; the shortfall in 2026 is estimated to be 800,000.  The construction industry still faces challenges before it can increase supply: a serious shortage of skilled labour - down from 3.1 million in 2007 to 1.4 million today and increased costs of materials and high financing costs. Meanwhile, it is estimated Spain must build at least 200,000 new homes each year for the next 15 years to keep pace with new household formation and absorb the cumulative shortfall already in the system. The problem for Spain’s housing supply is that it is not even standing still, it’s getting worse and unlikely to improve for years. Against this backdrop, continued upward pressure on prices should come as no surprise.

©Barbara Wood

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