The Real Estate Market – Luxury Homes or Rental Apartments?
In recent years, there has been a significant imbalance in the real estate market in Málaga and the Costa del Sol. While some are spending millions of euros on luxury properties, there are no homes available for regular wage earners to rent. In this article, we will explore the reasons behind the sharp price increases and how a better balance can be achieved.
Many people believe that property prices in Málaga and the Costa del Sol have become unreasonable and discriminatory. About ten to twelve years ago, the situation was the opposite—bargains could be found everywhere along the coast! Property prices were so low that it almost felt embarrassing. Yet, some buyers and investors still thought the prices were too high. Deals could fall through simply because a buyer was unwilling to increase his bid by €5,000! Spain was a country in a crisis, and some felt that properties should be more or less free. Was this simply the result of an earlier real estate bubble bursting and clearing the market of bad loans and excessive foreign capital?
A Weak Euro and Growing Tourism
The market was tidied. At the same time, the euro was weak, and tourism had started to gain momentum. Tourist rental licences were introduced, making short-term rentals extremely profitable. Banks cautiously began lending money for property purchases again, using conservative valuations. After years of economic crisis, the economy slowly began to recover.
Then COVID-19 arrived, and buyers who had previously spent only a small portion of their wealth on properties sold off large parts of their assets in their home countries and moved permanently to the Costa del Sol. People wanted to escape the rat race and live in the sun. Suddenly, the Costa del Sol had become a market for the wealthy.
At the same time, Spanish property owners, who had seen their assets increase in value, began investing even more. As we know, everyone wants to invest when the real estate market is safe and stable. As long as owners have capital, and banks willing to help, they can invest and watch their assets grow in value in a healthy market.
Regulating Tourist Licences Will Benefit the Costa del Sol in the Long Run
Someone needing a place to live but who cannot buy a home of his own must rent. Ultimately, renting becomes the only option for putting a roof over one’s head. Property prices and rental prices go hand in hand. This results in skyrocketing rental prices, along with property values.
Another factor driving up rental prices is the shortage of available rental housing unit. When demand for rental housing is high, homeowners opt to rent out their properties. However, the risk of having to contend with non-paying tenants or squatters has led many property owners to stop renting long-term and instead offer only short-term rentals.
Protests and public pressure have led to new restrictions on tourist rental licences in certain areas. However, the question remains: Has the supply of long-term rental apartments actually increased due to these restrictions?
A Growing Demand for Housing in the Future
The Costa del Sol’s real estate market is heading toward becoming a permanent residential market. In the future, we will have a housing market where more people live permanently in Málaga and the Costa del Sol. The need for housing is enormous and will only continue to grow. However, the prevalence of tourist rentals limits the availability of long-term housing.
The authorities should have regulated and limited tourist licences long ago. Distributing these licences virtually without restriction from 2016 to 2024 was bound to have consequences. People should be able to live on the Costa del Sol and work at any job they like just like in any other country, and not rely solely on tourism.
Is It the Responsibility of Private Property Owners to Solve the Housing Crisis?
According to Article 47 of the Spanish Constitution, every citizen has the right to decent housing—something that should be provided by public authorities. Spanish policymakers are doing everything possible to regulate rentals to protect tenants, but this significantly increases risks for landlords.
In order for the rental market to function in the long-term, both tenants and landlords need economic and legal safeguards. The current policies suggest that while owners retain ownership rights, the government, through rental regulations and indefinite rental contracts, wants tenants to secure perpetual tenancy rights.
However, is it really the responsibility of private property owners to solve the housing crisis? Rather, should not the Spanish authorities have built regulated rental housing long ago?
Recently, tax deductions have been introduced for young people purchasing property, but this initiative should have been implemented much earlier.
Conclusion
In order to have prevented the current housing crisis, the Spanish government should have taken parallel actions:
- Built more rental housing while cleaning up the real estate market.
- Pressured banks to be more flexible in lending to people who live and work permanently in Málaga.
Banks operate for profit, but is it really fair that someone earning just a few hundred euros more per month than another person has the opportunity to buy a home and even make a real estate career out of it, while others are left without options?
If banks remain highly restrictive with loans and no new rental housing is built, there must be some form of safety net for those unable to purchase their own homes.
The real estate market consists of multiple micro-markets, each functioning within its own ecosystem. A well-balanced market is crucial for stability.
One potential solution is for the government to prepay property owners and then sublet the apartments to tenants, who would pay rent directly to the state. This way, property owners receive guaranteed income, and tenants can secure housing.
Instead, the authorities now expect private homeowners to solve the housing crisis.
Spanish policymakers failed to anticipate how Málaga and the Costa del Sol would become so popular for permanent living. They did not foresee the extent of the housing crisis. However, could the government have afforded to offer tax incentives and build public housing sooner?
We should not blame the housing crisis on foreign buyers and tourism. The Spanish government made a critical miscalculation. Its eagerness to generate tax revenue and boost the economy at any cost led to poor long-term planning—and now, it is the government’s responsibility to fix it.
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At Franzén & Associates, we specialise in real estate consulting in Málaga City and the surrounding areas. Invest with us! With 18 years of experience in Málaga and extensive knowledge of the Spanish and South American real estate markets , we are here to guide you.
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