An excellent article questioning the current political model. We have translated below if needed.
Housing: A failure without a cure
Why is housing in the Balearic Islands totally inaccessible for a worker today?
Prices, including real estate prices, are always determined by supply and demand, which means that we are either facing an excess of buyers, or a shortage of properties, or a combination of both. This gap is quantifiable: tens of thousands of additional homes are needed. Developers are not providing them, which is their raison d’être, as a result of erroneous political decisions made over the years.
One reason is the lack of land. The Balearic Islands’ politicians compete to be the most ecological, reducing or removing buildable land – not only in protected areas, which is plausible, but also where there is nothing to protect. What environmentalism can there be in that today where between two six-story buildings in Palma, only one block of three is allowed? In addition to being foolish, it unnecessarily restricts this type of supply.
Today in Palma there is very little land left and what is available, is selling at the price of gold. As a consequence, the land costs end up adding about 800 euros more per square meter of a dwelling, one hundred thousand euros on average, with an extra forty thousand euros if a building has to be demolished. A developer recently told me that this week, he saw a plot on Calle Manacor suitable for a 19-storey development, for two million two hundred thousand euros, plus the demolition costs of the existing house. In this case, these costs would amount to a 40% surcharge .
A second significant factor is the cost of real estate transactions in the Balearic Islands and Spain. In the case of secondhand housing, the property transfer tax was increased by the Balearic Government by almost fifty percent as a result of the 2008 crisis. On top of that, agency and legal costs are excessive, being at a rate much more typical of an underdeveloped country with very few or cheaper transactions.
Municipalities increase costs catastrophically while processing building permits. Although. in theory, they have a maximum of three months, in Palma they are taking around eighteen months. This uselessness is disguised as rigor. This makes housing more expensive, as there are loans and interest to pay. It is estimated that five thousand euros are added per home due to the inefficiency. Building a property can involve up to five layers of administration, all slow and complicated, making everything more expensive.
Another factor is the absence of social housing. For about ten years, practically no developer has built social housing, simply because the Balearic Government has insisted on applying unfeasibly low prices (1,940€ per square meter in Palma, now slightly improved, but still insufficient). The politicians’ intentions look very nice in their initial manifesto, but as they are not realistic and there has been no cooperation, the result is that new social housing built by private developers has almost disappeared.
There is state-promoted council housing, but it is better not to talk about this as there is so little. Of course, the designs appear in architecture magazines, which is not exactly the most needed in this crisis. They build so few that they can even send a politician to deliver the keys to each successful bidder.
This situation also extends to the rental market. Having allowed the touristic use of dwellings they have removed these properties from the market for residents.
They are also treating homeowners as an enemy under suspicion. Those who want to rent know that neither justice nor power will protect them. The absolute failure in the housing market is a result of the lack of realism by our politicians. You cannot manage a market where home ownership is considered shameful. This is a business where without supply, prices will skyrocket and the victim will be the citizens. The island must be protected, but not by preventing housing on rural land and prohibiting ownership for the working and middle classes. Open spaces need to be “enabled” for living. The alternative is to go for a model contrary to Europe and the market economy, based on public intervention, which has only failed in countries that have tried this model. The ignorant people who govern us have already mooted this idea of limiting prices, which will make the situation more chronic. It is like blaming the firefighter for the fire. They must learn to be pragmatic. If not, their only option will be to flee after the failure.