The Spanish housing market has decisively entered a new, robust expansionary phase, characterised by strong demand, accelerating prices, and a critical structural deficit in housing stock. Driven by a confluence of macroeconomic factors—chief among them the anticipation of lower long-term interest rates, sustained improvement in household purchasing power, and significant demographic growth—the market dynamics today are exhibiting dynamism not witnessed in well over a decade. This current upturn, while sharing some superficial metrics with the previous boom cycle, is fundamentally distinct, resting on more stable financial foundations but facing a far more severe challenge in supply-side constraints.
I. The Resurgence of Demand: A Quantitative and Qualitative Analysis
The revival of housing demand has been swift and comprehensive since mid-2024, pushing transaction volumes to levels last recorded during the pre-crisis peak of 2007. In the trailing 12 months leading up to June 2025, the total number of home sales surpassed the 700,000 mark, an increase of nearly 20% compared to the first half of the preceding year. This high volume of transactions is a clear indicator of restored confidence and deep underlying appetite for property ownership.
However, a closer look at the data reveals a crucial difference from the exuberance of the past: the current transaction volume is being absorbed by a much larger market. Since 2007, Spain’s population has grown substantially, accommodating 4.3 million more people, which has translated into the creation of 3.2 million additional households. When contextualised against this demographic expansion, the current figure of 14.3 transactions per 1,000 inhabitants appears significantly more sustainable than the 17.3 transactions recorded at the height of the 2007 boom. The market is demonstrably deeper and less reliant on speculative frenzy, reflecting genuine demand driven by essential needs: formation of new households, internal migration, and the pursuit of owner-occupation.
The composition of sales further highlights the constrained supply of new homes. The majority of transactions continue to involve existing properties. While the sale of new homes is slowly gaining momentum—accounting for 22.2% of all sales in the first half of 2025, up from 21.0% the previous year—this remains a pale comparison to the 2007 figures, when new properties represented over 42% of the market. This structural imbalance underscores the enduring legacy of the construction slowdown following the last crisis and provides the central narrative for the current price pressures.
II. The International Investor Catalyst
While domestic buyers are the primary engine of the market revival, the influence of international purchasers is a defining feature of the current cycle and cannot be overstated. Non-resident buyers are playing a far from negligible role, acquiring approximately 50,000 homes in the first six months of 2025 alone. This remarkable volume represents 14.1% of all national sales, significantly exceeding the historical average of 10.5% recorded between 2006 and 2024. In the trailing 12 months to the first quarter of 2025, sales to foreign buyers reached an even higher proportion, accounting for roughly 18% of total transactions.
The magnetic pull of the Spanish property market for international investors is multi-faceted. It is rooted in the country’s appealing quality of life, the favourable climate, robust infrastructure, and the relatively attractive valuations when compared to other major European capitals. In recent years, the profile of the international buyer has evolved beyond the traditional retiree seeking a second home. The shift includes an increasing number of younger, wealthy professionals, often digital nomads or those seeking a European base for long-term investment, drawn by the prospect of solid rental yields in high-demand tourist areas.
This demand is not evenly distributed across the Spanish territory. The market’s vigour is most pronounced in regions that combine economic dynamism with high international appeal. The Balearic Islands and the Community of Valencia are perennial hotspots, but a major focus of international activity is seen in Andalusia and Murcia. These coastal and island regions, with their established tourist infrastructure and high volume of holiday rentals, are experiencing a concentrated influx of foreign capital, which inevitably places intense upward pressure on prices and rental costs. This territorial concentration of international demand contributes significantly to the widening regional disparity in housing market performance.
III. The Critical Supply Imbalance: An Accumulated Housing Deficit
Despite the undeniable strength of demand, the critical bottleneck in the current expansionary phase is supply. The new housing segment, while showing a gradual revival, remains chronically insufficient to meet the needs of a growing population and a strong economy. In the 12 months leading up to May, approximately 132,000 new homes were approved for construction, an increase of 13% year-on-year. This growth follows an encouraging 17% increase registered the previous year, demonstrating the property developer sector’s intent to ramp up housing stock.
However, these figures must be weighed against the actual housing needs. The current pace of new construction is failing dramatically to absorb existing demand and close the significant cumulative housing deficit. Since 2021, the market has accrued a shortfall of more than 500,000 homes. This structural deficit is the defining characteristic of the current expansion, providing the primary explanation for the sustained and aggressive growth in property prices.
The inadequacy of supply becomes starkly clear when contrasting new construction permits with household creation. Over the past few years, the country has witnessed the annual creation of roughly 226,000 new households, driven by demographic and migratory trends. Against this urgent need, the annual approval of only around 118,000 new construction permits highlights a systemic failure to build at the required pace. This phenomenon—the price of not building—is not merely an academic concept; it translates directly into a housing shortage, pushing prices beyond the reach of a substantial segment of the population and stressing housing affordability metrics across the board.
The persistence of this deficit is attributed to several deeply entrenched factors. Bureaucratic delays in municipal planning departments, the scarcity of serviced land zoned for residential construction (particularly in prime urban and coastal areas), and the volatile, rising cost of construction materials and labour all contribute to a sluggish development pipeline that is unable to respond efficiently to market signals. This disparity between robust, resilient demand and structurally constrained supply is set to continue widening the gap between prices and household incomes for the foreseeable future.
IV. Structural Stability in the Construction Labour Market
In a positive counterpoint to the supply challenges, the construction sector’s labour market demonstrates structural resilience and stability—a marked departure from the temporary and precarious employment patterns of the pre-2008 boom. The sector continues to create employment at a strong pace, with the number of registered workers increasing by 3.5% year-on-year, surpassing the average employment growth for the economy as a whole. Total employment in the construction sector now stands at approximately 1.45 million workers.
Perhaps the most significant structural transformation has been the drastic reduction in temporary employment, a direct consequence of the 2021 labour reform. In 2022, temporary contracts accounted for roughly 35% of the total workforce in the sector. By 2025, this figure had plummeted to a mere 4.8%. This represents a fundamental shift towards job stability, with full-time permanent contracts now making up 85.6% of the workforce, up from 63% previously. This consolidation is crucial: it improves worker quality, encourages professional development, and reduces the systemic vulnerability of the sector to sudden economic shifts.
Furthermore, the increased use of fixed-discontinuous contracts—a format well-suited to the project-based nature of construction, allowing companies to maintain the employment relationship during project downtimes—further reflects a healthier, more adaptable employment model. This stability in the labour market, alongside the growth in cement consumption (growing at 4% annually to reach 15 million tons), suggests a solid foundation for the expected gradual, albeit constrained, increase in construction output over the coming quarters.
V. Price Acceleration and the Affordability Crisis
The persistent imbalance between escalating demand and constrained supply has inevitably translated into a significant acceleration of house prices. According to leading national price indicators, the growth rate intensified in the opening months of 2025. The appraisal value index from the Ministry of Housing and Urban Agenda showed an increase of 9.0% year-on-year in the first quarter of 2025, up from 7.0% the previous quarter. The transaction-based price index published by the National Statistics Institute (INE) indicated an even sharper growth rate, accelerating to 12.2% year-on-year in the same quarter.
These increases have pushed the nominal price of housing to surpass the peaks registered during the 2007 cycle. It is important to contextualise this growth within the prevailing inflationary environment: in real terms (adjusted for inflation), prices have not yet universally reached previous highs, though new homes have already breached those real-term records. Nevertheless, the pace of nominal growth is substantial and has profound implications for housing accessibility.
The territorial disparity in price growth is a major concern. The most economically dynamic autonomous communities, such as the Community of Madrid and Catalonia, are experiencing sharp price increases, driven by intense demand and high pressure on available urban land. Separately, the regions most attractive to international tourism—Andalusia, the Balearic Islands, the Community of Valencia, and Murcia—are also seeing significant acceleration. In contrast, regions with lower demographic pressure and less appeal for large-scale real estate investment, such as Aragon, Castilla-La Mancha, and Extremadura, have recorded more moderate house price growth. This widening territorial gap means that the affordability crisis is becoming acutely concentrated in Spain’s economic and coastal hubs.
The pressure is even more pronounced in the rental market, where the lack of supply has created a full-blown crisis. Rental prices, measured by direct debit payments, rose by 5.5% in the first half of 2025, accumulating a staggering 30% increase since 2019. Indicators from major real estate portals show even sharper annual increases, confirming that the severely limited rental supply is acting as a force multiplier, diverting frustrated renters into the sales market and thus exacerbating the demand-side pressure on property values.
VI. Overvaluation: Contained but Trending Upward
The sustained period of rapid price increases has prompted national and international supervisory bodies to raise concerns regarding possible market overvaluation. At the close of 2024, the Bank of Spain estimated that property prices were trading between 1.1% and 8.5% above their long-term equilibrium level, an increase from the previous range of 0.8% to 4.8%. Similarly, the European Central Bank’s average valuation estimate suggested an overvaluation of around 10% in the Spanish residential market at the end of 2024.
While these indicators remain contained when compared to the dramatic pre-crisis deviations, the upward trend is clear and warrants close monitoring. By applying analytical methodologies to the affordability ratio at the regional level—a measure of house prices relative to household disposable income—it is evident that prices are gradually decoupling from income trends in several areas, notably the Balearic Islands and Madrid, leading to a state of increasing tension in affordability.
Differentiating the Current Cycle from the 2007 Bubble
Any analysis of price acceleration must address the fear of a repeat of the sharp correction suffered between 2008 and 2013. The prevailing economic context, however, presents fundamental differences that mitigate the risk of a similar catastrophic outcome.
The first and most critical difference is the supply dynamic. The 2000s boom was defined by a massive oversupply, with annual approvals of around 550,000 new homes against the creation of only 400,000 households. Today, the situation is inverted: the market is struggling with a deficit, with only approximately 118,000 homes approved annually compared to 226,000 new households created. This means the current price pressures are driven by fundamental scarcity, not speculative surplus. Furthermore, investment in residential construction remains stable at around 6% of GDP, a level that is roughly half of the highly speculative investment ratios seen during the height of the housing bubble.
VII. Financial Resilience and Mortgage Market Stability
The second major pillar of stability lies in the robust financial health of the primary market actors: the financial system, the developer sector, and households. The financial system is now dramatically less exposed to a sudden downturn in the housing market cycle. Credit extended to the developer and construction sectors remains responsibly contained at around 5% of GDP, a stark contrast to the ratios exceeding 40% of GDP registered in the late 2000s.
Household financial vulnerability is also substantially lower. Despite the recent rebound in mortgage lending, total household debt stands at only 42.5% of GDP, a significant improvement from the peak of over 80% recorded in 2010. Crucially, the Spanish mortgage market has undergone a structural transformation since the pandemic, with fixed-rate mortgages becoming the dominant product. Fixed-rate contracts have accounted for over 50% of all new mortgages granted since 2022, providing an enormous shield of stability against interest rate volatility for homeowners. This contrasts sharply with the pre-crisis era, when variable-rate mortgages accounted for almost the entirety of the market.
Finally, there is no evidence of a systemic relaxation in lending standards—a key factor in avoiding a repetition of past mistakes. While there is a slight increase in the granting of mortgages exceeding 80% of the appraisal value (10.9% in the first quarter of 2025), this is largely attributable to targeted programmes designed to help specific groups, such as young people and single-parent families, overcome the difficulty of accumulating the necessary down payment to access homeownership. These are strategic, socially driven policies, not indicators of widespread reckless lending.
VIII. Forward Outlook and The Policy Imperative
Looking ahead to 2026, the underlying market dynamics are expected to persist. Demand for housing is forecast to remain at historically high levels, with approximately 720,000 sales expected per year. This sustained demand is supported by the continuing formation of new households (estimated at 180,000 annually) alongside net purchases by non-residents (around 50,000 per year), with the limited availability of rental housing continuing to funnel demand into the sales market.
While the supply side is expected to gain some moderate dynamism—with new construction permits forecast to reach around 140,000 for 2025 and 150,000 for 2026—this remains clearly insufficient to meet demand. Consequently, the accumulated housing deficit will continue to widen, albeit at a more gradual pace than in previous years.
This persistent and deepening structural imbalance between supply and demand is the main factor underpinning the upward revision of house price forecasts. The current research anticipates price growth of approximately 10% for the entirety of 2025, followed by a still robust 6.3% growth in 2026. This rate of increase, which is projected to outpace the growth in household disposable income, will inevitably place further stress on affordability indicators, particularly in the most sought-after urban and coastal areas.
In conclusion, Spain’s housing market expansion is founded on solid, demand-driven fundamentals and is supported by a financially resilient framework. The primary and most pressing challenge, however, remains the severe and widening structural deficit in housing supply. This reinforces the urgent, non-negotiable need for concerted efforts from municipal and regional governments to accelerate the construction of affordable housing, which remains the central policy imperative required to ensure the long-term sustainability and social equity of this new expansionary phase.
