Demographics, house prices and wealth distribution

The AFI Emilio Ontiveros Foundation released a report that analyses demographic shifts (focusing on immigration, aging, birth rates, formation of new households), the housing stock in Spain (owning and renting), and the impact of both factors on house prices and supply and demand. According to the report, demographics and housing are key to understanding inequality in the distribution of intergenerational and generational wealth.

Main conclusions of the report:

Demographics: In Spain, birth and fertility rates have been falling consistently since the beginning of the century, and at a greater rate than in other European countries. Average life expectancy has increased (83 and 86 years for men and women, respectively) and is the highest among Europe’s leading countries. Only the entry of immigrants has prevented Spain’s population from declining significantly. The trends mentioned above mean:

• An aging population, with a significant increase in the dependency rate (number of dependent people per 100 people of working age) from 50 to 75 people in 30-50 years.
• Lower number of members per household: To continue falling from 4 people per household in 1970 to 2.5 in 2024 and estimates of 2.3 in 2039. Single-person households will be the majority in the next 15 years.

Demographics, supply and house prices: Until 2008, the production of new homes clearly exceeded the creation of households, though this didn’t stop house prices soaring – rental prices not so much. Since 2021, new homes have clearly exceeded the production of completed housing (approximately one million new homes compared to just over 700,000 new builds). The imbalances are largely concentrated in large urban areas, affecting not only the provincial capital or main cities, but also the municipalities that make up the metropolitan area.

• The public rental housing stock in Spain is much lower than the EU average: it represents 2.5% of total housing, compared to an EU average of 9.3% (16.8% in France and 30% in the Netherlands). 
• The rising cost of access to housing, both owned and rented, has been a general trend in all areas where there has been significant population growth due to the significant imbalance between the supply and demand of housing.

Imbalances in the real estate market increase the gap in the distribution of wealth. According to the report, the cost of rent in many areas is higher than the cost of a mortgage on a purchased home, which is especially relevant to young people and immigrants. Furthermore, the intense revaluation of housing in recent years hinders young people’s ability to own a home, explaining their low accumulation of wealth compared to other age groups. Whether or not you own your home plays a crucial role in increasing inter- and intra-generational inequality.