Strong household growth and falling supply are likely to support price growth
On the other hand, structural growth in the number of households will support the real estate market over the coming years. Due to strong household thinning, the number of households is increasing faster than population growth, which supports the demand side of the real estate market. Over the past 20 years, more than 20 million households have been added, a 70% increase. Between 2002 and 2012, the number of households increased particularly sharply with an average annual growth rate of 2.4%. The growth rate has slowed to an average of 0.4% per year over the past decade, but has continued unabated.
In the years ahead, household growth will continue to support the real estate market. INE forecasts that the number of households will increase by 1.1 million by 2035, a 5.3% increase in 13 years. This is mainly due to strong growth in the number of single and two-person families. These two groups are expected to grow by 16% and 11%, respectively, while the number of households with more than three people will shrink by about 5%. Spain already has a high proportion of flats (66%), compared with, for example, France (34%), Italy (55%) and Portugal (46%), but this proportion is likely to increase further over the next decade driven by a growing number of singles. In 2035, single people will account for 29% of all households, up from 26% in 2022 and 20% in 2002.
Moreover, supply is rising less rapidly than the number of households, which naturally puts upward pressure on prices. Between 2011 and 2021, the number of households increased by 5.4%, while the housing stock increased by only 2.9% over the same period, according to figures from the Ministry of Transport. For this year and next, we forecast a further decline in construction volumes, which will put additional pressure on the property market. The sharp rise in the cost of building materials puts an extra brake on construction activity. Production levels are currently more than 20% lower than before the Covid pandemic and we expect the sector to shrink for the fourth year in a row. For next year, we expect some marginal recovery. The upward trend in costs seems to have slowed. In addition, the Spanish construction sector will see some positive effects from investments in the EU recovery funds. Nevertheless, the number of households is also expected to continue to grow faster than the property supply in the coming years, fuelling price growth.
