The Bank of Spain questions the program of government guarantees for mortgages for young people and families approved by the Council of Ministers last Tuesday. Likewise, the banking supervisor warns of the growing social inequality that is causing a rental market in which prices have skyrocketed well above wages and points out that the pension reform will have to be retouched already in its first review, scheduled for 2025.

The banking supervisor has presented this Wednesday its annual report on the Spanish economy, in which the body dedicates a specific section to the problem of access to housing, especially among young people. The general director of Economy and Statistics of the agency, Ángel Gavilán, expressed his doubts about public guarantees for home purchases during the presentation of the document.

Gavilán compared the plan approved by the Government with the line of 100,000 million in guarantees launched during the pandemic so that companies and the self-employed could continue financing themselves during the moments of great economic uncertainty that followed the health emergency. Gavilán pointed out that the line of pandemic guarantees was “very powerful” and had “very positive” effects in the face of a situation that was “transitory” and “extraordinary”.. Two conditions that, for the general director of Economy and Statistics, do not exist in the case of access to housing, which responds to a “structural dynamic of the Spanish economy”.

“We have to think about whether we are facing a transitory or structural problem and whether the risk perceptions are adequate or not,” Gavilán said, referring to housing. And, for him, the risk assessment made by banks – which grant an average mortgage that covers 80% of the value of the home and not 100% as was the case before the financial crisis – “is adequate.”

The Executive's plan provides for the deployment of ICO guarantee lines of up to 25% of the value of the home to facilitate the purchase of the first home for young people and families with children. According to government estimates, around 50,000 people will be able to benefit from it.

With this endorsement, the Executive intends that households can finance 100% of their home (normally, mortgages do not exceed 80%) and thus overcome the barrier of having to pay an entry that can be around 40,000 euros to a flat valued at 200,000.

However, those who benefit from this guarantee will have to be able to face higher mortgage payments than in a normal situation, something that not all households can afford, since banks do not usually grant mortgages with payments that exceed 35% of the monthly income of those who subscribe it.

No to cap prices, yes to expanding the public offer

In its annual report, the Bank of Spain draws an X-ray of the problems facing the rental market and analyzes the measures adopted by the Government to appease the imbalances. The supervisor welcomes the fact that the law focuses “on the necessary increase in the supply of rental housing”. Of course, the 183,000 homes for social rental will not be enough to solve the problem.

Given the strong imbalance between a low supply and an increasing demand, the banking supervisor recommends that the Government also promote the private rental offer. Among the actions that could be taken to get more owners to start renting their homes, the Bank of Spain recommends “reinforcing legal certainty” and “reducing regulatory uncertainty”. Other options would include applying tax incentives to companies so that they offer residential rentals at reduced prices or making local planning regulations more flexible in the most stressed areas to build more housing.

Of course, the banking supervisor advises against intervening in market prices, a measure that, although it can alleviate rents in the short term, can also “generate unwanted effects in the medium term”. Among these negative effects, the supervisor highlights the reduction in the supply of rental housing, both in quantity and quality, which may end up causing “higher price levels”, in the words of the Governor of the Bank of Spain, Pablo Hernández de Cos. In any case, the Bank of Spain insists that “there is no miracle formula” to tackle the housing problem in Spain and points out that it is important to address it from “multiple dimensions”.

An increasingly inaccessible market

The market dynamics in recent years is making it increasingly difficult to access a rental home. The Bank of Spain highlights that the prices of a median rental rose 20% between 2015 and 2021. Only in 2022 the increase has been 7.5%. Increases that occur in a context in which supply is scarce and tourist rentals have proliferated in some of the most stressed areas.

This is the scenario with which more and more Spaniards (particularly young people) find themselves, who have been expelled from the buying and selling market.. Job insecurity —with contracts that remove any possibility of applying for a mortgage— and the tightening of access to credit, with more demanding banks and less generous loans than decades ago, only leave the rental path open.

This combination of increasingly higher rents and low wages increases the proportion of the population at risk of social exclusion and constrains the spending capacity of families. To the point that half of the households that live in rent are already at risk of poverty or social exclusion, the highest rate in the European Union. In Spain, 41% of tenants allocate more than 40% of their income to pay the rent, a percentage that is only higher in Greece, the Netherlands and Belgium.

The fall in the proportion of households with registered property ownership in the last decade has contributed to the entry into situations of vulnerability in many families, especially young people.. Between 2011 and 2020, the rate of households owning their main residence fell from 82.6% to 73.9%. However, among those under 35 years of age, the decline has been much more pronounced, from 69% to just 36% in 2020.

We will have to tweak the pension reform

The Bank of Spain has joined the voices critical of the pension reform recently completed by the Government. The banking supervisor argues that “foreseeably” measures will have to be adopted to strengthen the sustainability of the pension system as early as 2025, the year in which the first sustainability assessment is scheduled to be carried out by the Airef.

The banking supervisor is particularly critical of the reform.

The banking supervisor is particularly critical of the reform. The institution chaired by Pablo Hernández de Cos argues that the regulation introduces “spending obligations that have not been fully offset by revenues”, warns that the rise in contributions could destroy hundreds of thousands of jobs and attributes half of the increase in the structural public deficit after the pandemic to pension spending.

The banking supervisor is particularly critical of the reform.