Housing has become the main concern of citizens. And in the face of this there is an idea that is continually repeated: that the problem can be solved by building more houses.
At first glance, the numbers seem to support this idea. Between 2021 and 2025, Spain’s population grew by around two million people and more than 200,000 new homes are created every year. Meanwhile, new housing construction is proceeding at a much slower pace. The conclusion seems obvious: there is a shortage of houses, so we need to build more.
However, this explanation, although it seems logical, does not fit the data. Prices began to rise ten years ago, while the sharp increase in population has only been going on for four years. The gap is too wide to attribute the price increase to population growth. The Bank of Spain analyzed this very topic in its 2023 report, comparing the evolution of population and prices – both in sales and rentals – in municipalities with more than 50,000 inhabitants between 2014 and 2022. At first glance, the data seems to confirm the demographic hypothesis. But when you look at the details, the picture changes completely.
The first thing that catches attention is the number of municipalities that are losing population and, despite this, seeing prices increase. They are not isolated cases, but an important part of the whole. If there are fewer people, how can house prices rise? Examples abound: municipalities losing 2% of their inhabitants and prices skyrocketing by more than 100%; others, with demographic decreases and increases of between 20% and 60%. On the other hand, in countries where the population is growing strongly, prices increase at the same rate or even less than in municipalities where it is growing little.
The case of rent is even more surprising. Prices increase absolutely in all municipalities, even in those that are losing population. In places where the number of inhabitants is decreasing the most, rents have increased between 18% and 27%. If demand decreases, why do prices rise?
This occurs because the increase in house prices is not primarily explained by the increase in population. If this were the case we would see a proportional relationship: where the population grows, prices would increase; and where it falls, they would tend to stabilize or even fall. But this doesn’t happen. While there is some relationship between the two factors, most price increases occur even in places where the population changes or declines little. The explanation, therefore, must be sought in other elements, more linked to investments and profitability than to demography. The increase in non-residential demand seems to better explain what is happening. Tourist apartments, second homes, purchases by non-resident foreigners or speculative investments increase prices without increasing the number of neighbors. Sometimes they even expel the local population, causing the opposite effect: fewer inhabitants and more expensive houses.
All of this occurred in a period of quantitative easing, with cheap money, very low interest rates and strong stimulus to financial markets. This environment fueled the real estate market and reinforced the idea that real estate would continue to appreciate, pushing prices well above what residential demand justified.
Much of this price pressure comes from investors, not families looking for a home to live. The problem is not that families compete with each other for homes, but that they do so against those who buy to invest. These have more liquidity and purchasing power, can pay more and leave out many families looking for their first home. So families are excluded not because there is a lack of houses, but because they cannot compete with investment capital.
If these are the main factors behind the increase in real estate prices, the solution is not to build more buildings, but to change the rules of the market: to curb speculative demand and strengthen that for primary construction. Before continuing to build, it is necessary to regulate in this direction, limiting, among other measures, tourist apartments, seasonal rentals and the accumulation of accommodation.
Now, this doesn’t mean the same thing happens everywhere. In areas where the demand for habitual housing exerts strong pressure on prices, it is also appropriate to rethink the way in which these are built. If the market continues to be dominated by investors seeking high returns, they will monopolize the ground and set the rules of the game. In the end, the land ends up concentrated in the hands of those with more liquidity, who raise prices to ensure profits and reproduce the same problem that they wanted to solve.
The great challenge is to act on the main causes of the increase in house prices and stop the speculative and financial uses that reduce supply and raise prices. The priority is not to lift more bricks, but to understand what forces lie behind this escalation and address them once and for all.
