Structure of the Spanish housing market and sources of finance: an overview

Structure of the Spanish housing market and sources of finance: an overview
Mari-Cruz Manzano

In Spain, gross capital investment in construction, particularly that related to residential uses, has made a significant contribution to aggregate economic and financial developments. In nominal terms, in 2004 construction investment represented 16% of GDP and 58% of total gross fixed investment.


Around 50% of the investment in the construction sector was related to residential uses. The involvement of the public sector in the construction sector and, more specifically, in the residential housing segment has been extensive in Spain. Such involvement has taken the form of new regulations, favourable tax treatment of certain operations, direct supply of subsidised housing and subsidies for housing financing.


Although over recent years such involvement has diminished, regulations are still impinging on the structure of the housing market. Over the last decade, residential building activity in Spain has remained strong and relatively stable in comparison with other types of building activity due to a combination of factors. In a context where the ratio o owner-occupied dwellings has been traditionally high (above 80%), regulations and fiscal treatment have boosted housing ownership against rentals. In addition, the declining trend in the level of interest rates and the lengthening maturities of mortgage loans contributed to improving affordability ratios over the 1990s, even against a background of dynamic house prices.