Why leaving home is not always an option

When Spain’s housing ministry announced at the end of last year that it would provide young people with rent subsidies, its telephone lines and website were brought to a standstill by more than 300,000 requests for information in a single week.

The government estimates that nationwide there are around 360,000 young Spaniards aged between 22 and 30 in employment who earn less than EUR 22,000 a year, and, as such, are eligible for housing grants of EUR 210 a month toward their rent. At present, the regional government of Madrid is processing the 4,323 requests that were presented during the first week of January.

Following the massive response to her ministry’s offer, Housing Minister Carmen Chacón said last week: "There is no time limit on applying for housing subsidies, and young people can do so whenever is convenient for them." She also pointed out that there was no limit on funding, saying: "If we get twice as many applications as we calculated, we will pay twice the amount of subsidies," adding that the first payments to young people toward their rent will go out in the month of February.

House prices in Spain have soared in the last 10 years, far outstripping growth in salaries. Leading employment agency Adecco says that in real terms – taking into account inflation – salaries have grown by just 1.4 percent since 1997, something that it attributes to a fall in productivity.

But house prices over the last seven years alone have risen by more than 120 percent. The effect has been a sharp fall in the number of young people able to leave home. In 1977, for example, 40 percent of the population was able to live independently; that figure has now fallen to below 30 percent, according to official figures.

The Spanish Youth Council’s housing observatory, Objovi, says that the reason young people are not leaving home in the numbers they used to is very simple: they cannot afford to. According to its latest report, a first-time buyer would need to be taking home a minimum of EUR 36,678 to be able to buy a home. The average take-home salary for the under 30s is around EUR 16,225. That is a 126-percent shortfall.

In Madrid and Barcelona, the average 35-year-old needs to put aside around 82 percent of their salary to pay their mortgage, as opposed to the 67 percent that the same person would need to in the rest of Spain. A young person aged between 18 and 24, says Objovi, would need to spend all their wages, plus eight percent more, to meet the repayment levels of an average mortgage.

Banks agree that mortgage payments should be no more than a maximum of 35 percent of an individual’s earnings. For a young person living alone in the Spanish capital with an average annual take-home salary of EUR 19,507, that means that the ceiling for a property is EUR 109,269, while a couple aged between 18 and 35 can afford to pay EUR 192,778.

In other words, most young people, starting out without any financial help from their family, can forget about owning a property. In central Madrid and Barcelona, the price per square meter of an apartment is an average of EUR 6,000. Outside the cities, the price can fall to around EUR 4,000.

A quick look at what is on offer on the websites of the five main real estate agencies in the provinces of Madrid and Barcelona reveals the difficulty of the situation. In the Spanish capital, the only properties available for under EUR 100,000 are usually between 15 and 20 square metres, and are typically interior basements with no natural light.

But if you are prepared to travel in from the smaller villages up to 50 kilometres from the capital, it is possible to find a free-standing property of more than 200 meters squared for as little as EUR 104,000.

Living in Barcelona is not an alternative either. On the main real estate website for the Catalan capital there was one property for less than EUR 98,000: a ground-floor apartment in the city’s run-down Carmel area that didn’t have a habitation permit. "But it has always been lived in," insisted its owner.

In the outskirts of the city, in Mollet del Vallés, another property was available – again without a habitation permit. In the same town, a studio was for sale at EUR 78,000, also without a habitation permit. That said, the owner pointed out that he hadn’t even tried to apply for one.

To find what might be called reasonable prices close to Barcelona, it’s necessary to travel 50 kilometres out into the hinterland of Bages, where apartments of around 45 square metres in need of work can be found for less than EUR 90,000.

That means that for most young people who want to leave home, and who do not have a partner, the only realistic option is to rent. But with a monthly income of around EUR 1,625, a young person in Madrid can afford to pay between EUR 490 and EUR 570 per month. In Catalonia, where the average annual take-home pay is around EUR 15,500, that translates to between EUR 440 and EUR 510 a month. In reality, average rents in both cities are more like EUR 700-900.

Antón Costas, a professor of political economy at the University of Barcelona, was initially sceptical about the government’s subsidies for young people, saying that they were inflationary. But he says that the downturn in the housing market in recent months should counter any risk of inflation. He agrees that something needs to be done to help young people finally become independent from their parental home.

Most property groups also agree that the measures are a step in the right direction, and that Spain must follow other developed countries’ widespread use of rented property. But more needs to be done to increase the number of apartments available for rent – for example, low-cost, publicly built housing, and better guarantees for owners of second properties to encourage them to let out empty dwellings. The housing ministry now offers a service to second-home owners who want to rent out their properties, guaranteeing income – usually around 15 percent lower than in the open market – for a five-year period, and taking all responsibility for maintenance of the apartment during the letting period.

But the results of a government survey in September among 1,000 young people between 20 and 30 years old showed that renting is still unpopular. More than half of those questioned expressed their desire to buy their own property, in spite of the government subsidies they were eligible for if they rent. In fact, around 60 percent said that the price of renting and monthly mortgage payments were similar, and therefore opted to buy property whenever possible.

The European average for tenants living in rented accommodation is 38 percent, but in Spain this figure is just 11 percent. The housing ministry says that to reverse this trend, renting needs to not only be cheaper, but they also need to convince the young that it is an attractive option.

The results of the survey showed that young people would not be interested in renting even if conditions were to become more favourable. Among the reasons they cited were the poor state of rental accommodation, lack of guarantees for long-term leasing, and the high deposit or bank guarantee required to sign a rental contract.

In the rest of Europe, renting has long been accepted as the first step out of the home for young people – in fact, in countries such as Germany and The Netherlands, many well-paid professionals choose to never buy property.

Again, the state has a role to play here. Alejandro Inurrieta of the housing ministry’s renting agency says that in Spain, of the 10 percent of rented accommodation, seven percent is privately owned. In The Netherlands, where 47 percent of accommodation is rented, the state owns 35 percent, and the private sector 12 percent. In France the figure is 17 percent and 21 percent respectively; in the United Kingdom the breakdown is 20 percent and 10 percent; in Germany 16 percent and 51 percent; and in Italy, six percent and 16 percent.

[Copyright El Pais LL. PELLICER / C. SÁNCHEZ-SILVA 2008]

Subject: Spanish news, housing market