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Article copyrighted © 2025. Plagiarism will be criminally prosecuted

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
28^th of July 2025

Introduction

In short, yes.

Property prices will continue to soar over the next years.

Not only can, but it is my view they will climb to new heights.

Sounds unreasonable?

At first glance, it would appear so, yes. But if we dig deeper, it becomes apparent that we are not in 2008, and there are strong fundamentals on why property prices will continue to increase over the next years.

It is no secret that property and rental prices have ballooned out of control in Spain, particularly off-plan properties (new construction). Especially in large Spanish cities (such as Barcelona, Madrid, Malaga and Valencia) and sought-after coastal areas. Property prices have soared by two digits year-on-year in these areas, and by 8% in the remainder of the country.

Whilst Spanish wages barely increased 2.76% over the last THREE decades (in real terms, adjusted for inflation), property prices increased THREEFOLD (from 1995 to 2025)!

The exception is the Spanish minimum wage, which the government keeps raising every year, exacerbating Spain’s record youth unemployment, the highest in all of Europe and out of any OECD country (38 countries), which groups the most developed economies in the world.

So, given how Spanish wages remain practically the same over the last three decades and property prices have tripled, is the rise in property and rental prices sustainable long-term?

In this short article, I’ll strive to take a shot at this question and reach some conclusions.

Differences with the 2008 property boom

The fundamental difference is that while in 2008 greed was the main driving force behind the overpriced real estate market, now in 2025 the reason is a supply crunch. There are far too many buyers chasing few units, which makes property prices appreciate considerably.

In plain English, in this property boom high prices are justified because there is a severe stock shortage of new build property. Further below, I explain the underlying reasons in detail and why I think property prices will continue to rise over the next years.

Underlying reasons for Spain’s new property boom and increased property rental prices

Whilst Spanish Authorities are more tactful in speaking of a new property bubble than the US Department of State is of Taiwan’s independence, the fact is that if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.

Call it what you want (semantics), to my eyes, it is a new property bubble.

Property prices are in fact 10% higher than what they were at the height of the 2008 property bubble. Every day we witness mass protests in large Spanish cities by struggling natives who call for housing and rentals at affordable prices.

I collate below the main reasons, both domestic and foreign, which help to explain the unabated rise in property and rental prices in Spain:

Global reasons:

• Pent-up demand. Post-Covid 19 there was a pent-up demand for property (not only by natives but also by foreigners). People, after being forcefully locked up for years in their homes, found a new lease on life and a renewed sense of freedom post-Covid by spending like there is no tomorrow. Roaring twenties déjà vu?
• Huge savings. Covid-19 outbreak forced people to stay at home and not spend any money. There was huge amount of savings built over a 2 or 3-year period.
• Quantitative Easing (QE). All central banks, to kickstart the economy after the global pandemic, indulged in Quantitative Easing which led to a massive spike of inflation across the global markets, specifically caused by the US Dollar. As a result of the unbridled inflation caused by QE, people could buy less things with the same amount of money (loss of purchasing power), which led investors to pile capital into real estate like there was no tomorrow to hedge against rising inflation.
• Global supply chain disruption. The Covid-19 virus severely disrupted the global supply chain, which impacted construction materials employed by Spanish builders on new builds. This shortage of materials translated into a massive price spike which was passed on to the final consumer (property buyer) by increasing property prices.
• Drop in interest rates. This incentivises borrowers to take on loans and buy property, as it becomes easier and more affordable to secure finance.

Spanish-specific reasons:

• Supply crunch. This is hands down the most important reason. You do not need to be an MIT graduate to realise that if there is a large number of buyers chasing a limited supply stock of new construction, prices are bound to leap. It is only basic economics. This issue has been caused by the government actively intervening in the market through excessive regulation. Spain builds approximately under 90,000 new homes every year (it is the second country in the Union that builds fewer homes after Portugal), when the Bank of Spain estimates the demand is well over 500,000 units a year. In other words, there is a shortfall of over 400,000 homes a year, given Spain’s strong housing demand. This huge stock gap translates into an affordability crisis of gargantuan proportions as property prices skyrocket because of a low supply. In other words, the government, through its policies and interventionism, has triggered an affordability crisis, the extent of which remains to be seen.
• Increased development red tape. In the wake of Spain’s disastrous 2008 property bubble, Spain teetered on the brink of default in 2013, prompting successive Spanish governments to take it upon themselves to regulate harshly on new build property. As a result, a mountain of red tape and admin challenges was added. This not only restricted the supply of new property (builders simply did not want to build new properties) but also added to the final price tag, as ultimately the end consumer (property buyer) was made to pay for all these additional “security measures”.
• Misguided housing policies. Whilst the progressive Spanish government has worked tirelessly in pursuit of lofty goals (like making housing and rentals more accessible to people, especially to vulnerable and younger collectives) it has done so by following misguided housing policies. In a nutshell, they have steamrolled the rights of landlords through new laws (like Spain’s new Housing Act from 2023) which translated into landlords pulling their properties away from the market (estimated at over 250,000 properties removed nationwide from the rental market) which - following the laws of demand and supply - translated into higher rental prices across the board. For example, in the city of Barcelona landlords have pulled out of the market 55,000 rental properties since 2023 because of the draconian laws approved by regional authorities who overzealously apply the government’s new biased Housing Act from 2023, which bashes landlords’ rights and overprotects tenants. As there are fewer rental properties available, rental prices go up. Moreover, the very vulnerable collectives the government commendably sought to protect with its 2023 new law are being shunned by landlords as it is almost impossible to legally remove them from the property in the event they fall in arrears or of non-payment. In plain English, Spain’s Housing Act from 2023 backfired spectacularly, making the rental situation much worse for tenants, particularly for vulnerable collectives, as rental prices have skyrocketed all over Spain. In view of the blatant failure of its misguided housing policies, the government, instead of conceding defeat and backing down on them, as would be the sensible thing to do, are actually doubling down on them by enacting even more laws that further aggravate the rental problem.
• Chronic shortage of construction workers. Unlike in 2008, Spanish nationals do not fancy being bricklayers, and developers are really struggling to find and hire fit workers. It also does not help that 55% of Spain’s bricklayers are over the age of 45 years old. So, besides being undermanned and overworked, they are also overaged, which limits the number of available new developments.
• Zero public housing. The current progressive administration has built almost zero social housing over the last 7 years. Yes, Spain’s Socialist-Communist government has made several grandiose proclamations over the years (frankly, I’ve lost count on how many) announcing ambitious government plans to spend X billions of euros in new social housing – but it never gets done. Meanwhile, silently but decidedly, some regional governments, like Madrid’s, have built thousands of social housing. It beggars’ belief that those who preach and uphold themselves to higher moral and social standards do nothing about it – nada – whilst conservative regional governments, which are ideologically opposed, are quietly building social housing in the thousands like it were nobody’s business. The world upside down. That’s 101 politics for you. In Spanish we have a great saying: “unos se llevan la fama y otros cardan la lana.” Translated, some take credit for what others do.
• The glut of 2008 property is unsuitable for dwelling. Although Spain indeed built a large glut of housing in the last property boom from 2008, most of these units are poorly located, far from city centres, and with poor infrastructure, making them unfit and far less attractive compared to sought-after newer developments. These were properties that were bum-rushed and ill-conceived at the time for a quick buck – no one wants to live in them as they are far too isolated.
• Constantly undermining property rights. By now it is no secret the government has gone out of its way, and then some more, to undermine property rights in Spain by allowing squatters (okupas) to take over the country. It has openly done so to implement social housing policies at the expense of other people’s private property. Landlords do not want to risk renting out their properties if they can end up being occupied by squatters who have more rights than landlords under this administration.  

The government’s stance on rising property and rental prices

Surprisingly, it can be summed up as increased taxation, or even creating new taxes, across the board to stave off housing demand.

To top it off, the Spanish government is ludicrously, and irresponsibly, shifting the blame on foreigners to deflect responsibility on its own administration's housing policy failings. The government argues that foreigners – particularly tourists – are driving house and rental prices through the roof in Spain. Whilst this may be true in some selected coastal areas, it does not apply to large Spanish cities (foreigners don’t buy there) where the crux of the housing problem is located. Foreigners are always suitable scapegoats for Spanish politicians as they cannot vote in national elections, win-win.

The truth of course is quite different. Tourist accommodations account for under 1% of all properties. But hey, never let the truth get in the way of a good story. Never mind the fact that Tourism is the Golden goose that accounts for over 18% of Spain’s GDP (12% directly and a further 6% indirectly). In plain English, one-fifth of Spain’s economy is overreliant on Tourism, which by the way should be addressed to reduce its overdependency, as it is a weakness that can be exploited. People living in glass houses should not throw stones.

Call me simple-minded, but if the crux of the housing problem is a supply crunch, maybe, just maybe, one would think the government should focus on actually increasing the supply stock, so prices drop. In other words, build more houses. I know, wild thoughts.

In lieu of increasing the new construction stock, either by facilitating or incentivising developers to do their job or fostering a nationwide public housing program, the government has been relentlessly increasing taxation as a deterrent.

For example, it will shortly apply a 21% VAT on all tourist rentals equating them to hotel accommodations, which is bonkers given how you cannot compare a pensioner living on passive income (renting one or more properties to make ends meet) to the clout of the hotel industry that moves billions. They are also creating a new 100% tax on non-EU property buyers, which is also crazy as it will create new problems without fixing existing ones.

What’s clear to my mind is that increasing taxation, or creating new taxes, or even eliminating blue-ribbon golden visas, is not the way forward to solve Spain’s housing situation, which is indeed a growing concern.

At best, these measures will act as a temporary band-aid scaring away a few buyers, albeit the root of the problem, which again I stress is the lack of housing supply, will not be addressed. Because demand for housing remains strong.

At worst, such measures will scare developers who will build fewer new properties, afraid of being unable to sell them with such high taxes, further compounding and exacerbating the new build supply crunch.

Proposed solutions to address Spain’s high property prices induced by a supply crunch

In view of the crazy new proposals I’m reading in the press to solve Spain’s housing situation, such as the proposal for 70-year mortgages which will be hereditary from parents to children over multiple family generations (Enslavement 2.0), I have humbly collated below some basic pointers:

• By allowing developers to build more properties on reducing the ludicrous admin red tape.
• Foster an ambitious nationwide construction program of state-subsidised property for those on low or precarious incomes (social housing or shareholders). The government could kickstart a public program to co-own property. For example, the government would own 80% and the property buyer the 20% balance. Over time, this percentage would gradually shift as the buyer repays the government, until he finally owns the property outright after two, or more, decades of repayments under special subsidised terms. It would not be a handout, but a means to facilitate access to housing for those who struggle with conventional mortgage loans.
• Approve audacious tax breaks for taxpayers with mortgage loans over extended periods of time i.e. 20 years plus. Tax breaks for 2 or 3 years are useless, as one cannot plan ahead with such short tax benefits. In order for people to commit financially over extended periods of time (decades) you need tax breaks that match such time periods.
• Special tax breaks for first-time buyers (i.e. youngsters) as in other countries.
• Special tax breaks for single-parent families (i.e. single or divorced mother raising two kids).
• Spanish regional and local administrations, specifically town halls, need to release their iron grip on land and liberalise it instead of hoarding it like dragons of old.
• The central government, and all regional administrations, must reduce their strong dependency on housing to raise taxes. This severely impacts on the final asking price buyers pay for homes (approximately by 30%). Public administrations must cease viewing and treating land as their own private piggy bank to finance themselves at the expense of struggling property buyers. There are smarter ways to raise taxes without having to resort to sharply increasing the price of a first necessity good (housing).

In conclusion: Property prices will continue to rise over the next years

Property prices in Spain will continue to rise over the next years no matter what. Specifically new build property, there is no question about it.

Even if the government were to decisively take head-on the problem, and fast-track an ambitious housing program nationwide tomorrow, it would still take several years to implement. Developing land and building houses takes years, it’s no walk in the park. It requires careful planning ahead and immense financial resources.

Even the points I raise above as suggestions would realistically take years to implement and would require resolute bipartisan approval by both leading political parties, which seems unlikely, given the country's broken political unity, marred by ongoing petty squabbles and feuds.

And because none of the above will foreseeably take place on time, certainly not within the next 2 or 3 years, and with the required political decisiveness, is why I believe property prices will continue to soar in Spain in the short and mid-term. Maybe not as sharply as until now, but an upward trend nonetheless.

Unless the government sets sales and rental prices by decree (central planned economy), or a major geopolitical event derails the current situation (global war, new pandemic, fall of the US Dollar as the world’s reserve currency, rise of the AI, etc) the only way for Spanish property prices is up because of the supply crunch.

It simply cannot be fixed short term unless the government expropriates properties from private individuals and companies to bridge the huge property demand gap of 400,000 units a year.

At LNA, our friendly team can assist you in buying (or selling) your property anywhere in Spain. We can also get you any residence visa in Spain. Give us a call!

At Larrain Nesbitt Abogados (LNA) we have over 22 years of experience specialising in property conveyance and taxation all over Spain. We also assist clients with immigration & residency visas, and inheritance procedures (probate). You can contact us by e-mail at info@larrainnesbitt.com, by telephone on our UK line (+44) 0754 3838 218, or Spanish line (+34) 952 19 22 88, or by completing our contact form.

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. Ní neart go cur le chéile. VOV.

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