The growth of housing demand, one of the most positive surprises of 2021

The widespread rise in demand and the property development sector’s reduced capacity to respond are driving up prices, especially in the new housing segment. Since the year-on-year rates reached their low point between Q4 2020 and Q1 2021 (depending on the indicator), prices have followed an upward trajectory throughout 2021, rising by between 3.3 pps (National Statistics Institute’s price index) and 5.5 pps (Association of Property Registrars’ price index) up to Q3 2021. Thus, prices are 6.6% above pre-pandemic levels, albeit still 12% below the 2007 peak (according to the NSI price index). This trend is observed in all autonomous community regions, albeit to different extents, and not all regions have yet surpassed pre-pandemic levels (Navarre, Aragon and Castile and León, among others).

In the short term, the greater pull from demand compared to supply, the rise in construction costs (an effect which is proving more persistent than initially expected), as well as simply the inertia of housing prices all suggest that they will continue to climb.

In the medium and long term, given the absence of imbalances in the main factors which determine demand and supply, we do not expect prices to enter a worrying upward spiral; rather, their growth will probably be more in line with changes in household income, particularly once the «champagne effect» of demand has been diluted, supply has recovered more significantly and commodity prices have moderated.