The housing-market bubble taught us that bricks are not always the safest investment, despite what our parents had drummed into us, but it’s not over.
It’s not over because the root problem has not been solved, so that we have passed from a house-price bubble to a house-rent bubble… and the underlying problem; i.e., the culprit, is the banking sector.
The Government never took the banks to task; instead they bailed them out and have basically, although they won’t officially admit it, written off ever getting the money back even though the banking sector is buoyant again.
Young couples were brainwashed into getting into virtually life-long mortgages repaying ridiculous monthly sums with, “it’s silly to pay rent if you can be paying a mortgage, which will give you security and collateral.” So millions of couples signed up for 40-year mortgages, dedicating one salary to mortgage repayment and the other to the domestic running costs. Thus both parents had been condemned to work for decades and having children put on hold.
The Government during the house-price bubble sat back and watched banks hand out 110% mortgages, which were popularly known as hipotecas Ysis (Y si quieres comprar un coche tambien?) The Governor of the Bank of Spain, a political appointment, whose job it was to control the lending market, did nothing.
And then it all came crashing down with middle-class couples suddenly finding themselves living with relatives or worse, on the streets and searching supermarket rubbish bins for food.
Nobody, who was responsible, either through active involvement (bank directors) or through failing to do their job (Finance ministers or the Chairmen of the Bank of Spain) went to prison.
What made it so bad in Spain was the negative-equity trap where no mortgage-default system allowed home owners to hand over the keys to the bank and walk away from the debt; instead they lost their homes yet were still saddled with huge debts.
Who decided on the value of the property upon taking out a mortgage and upon repossessing the property? The banks, which is about as close as you can come to ‘having your cake and eating it,’ as you can get.
There is also the case that the banks repossessed thousands of properties, making them the new owners, but refusing to pay the community fees, so that you have block communities struggling to pay for communal maintenance because banks are shirking their contributions. The successive governments, as you can guess, have done absolutely nothing about it.
So, now we have millions of couples unable to get a mortgage and having to rent (most of them don’t want to burn their fingers twice, anyway). Enter stage left: the house-rental bubble.
But we would be wrong in thinking that this rental bubble is just about a huge demand for living accommodation – as with the housing-price bubble, it’s all about speculation.
Take Madrid, for example, where the then regional government decided to sell off its VPO’s (subsidised housing) to vulture funds in order to balance its book. There is something cruelly ironic in that social housing should be put into the hands of vulture funds, so it should be of no surprise that the first thing that they did was to whack the rent up resulting in rent in arrears and eviction. You can reason with a normal landlord but a vulture fund just wants you out as fast as possible.
The fact is that for the first time since this crisis began back in 2007, there are more evictions for non-payment of rent rather than for mortgage default. In fact, 80% of evictions nowadays are for non-payment of rent.
Which brings us to holiday lets. It is in the big cities such as Barcelona and Madrid that this type of letting is causing problems. Young people now cannot afford to live in their own barrios because so many flats and properties are being rented out to tourists at very high rates – much to high or a mileurista (somebody who earns 1,000 euros a month).
Some regional administrations are contemplating taxing empty flats so that owners will but them on the rental market as dwellings, rather than holiday lets. Down here on the coast or the Alpujarra, holiday lets are not a problem and the only people who are upset about them are hotels.
So, what we have are rentals rocketing, forming another financial bubble and, believe it or not, some banks are beginning to offer 100% mortgages – it seems that nobody has learnt their lesson.
What, then, can anybody do about the artificially high, rental prices for dwellings? Well, the Central Government has said that it is going to build 20,000 units of social housing to bring the price down. Yet we should remember that we are living under the constant threat of snap elections as they could soon be called by the minority government under PM Pedro Sánchez which is struggling for support to approve the 2019 Budget. Therefore, these promises are more electoral than firm intention, perhaps.
The reality is that the Spanish state dedicates 300m euros to social housing whereas France, for example, dedicates 6,000m euros.
The underlying problem is that thanks to the previous government’s labour reforms, employment in general is precarious and poorly paid, which has repercussions on consumerism and social-security payments – the lower the salary, the lower the employee’s contribution to the social security coffers.
Therefore families cannot afford high rents and even if they could, the stability of their salary-earning capacity is null. A recipe for eviction.
(News: Spain)