Spain’s coastal housing squeeze

Spain’s coastal housing squeeze: why new homes are harder to build

Rising demand, VPO rules, licence delays and labour shortages are putting new housing under mounting pressure on Spain’s coast.

For developers building new homes along Spain’s coast, the challenge is no longer confined to finding land or attracting buyers. Regulated housing requirements, lengthy licensing processes and a shortage of skilled workers are squeezing the route from plot purchase to completed homes.

Sales and marketing director at Taylor Wimpey Spain, has watched the company’s customer base evolve. While it once built housing for domestic Spanish buyers, its current developments are largely marketed to overseas purchasers seeking the experience associated with living on Spain’s coast.

The appeal goes well beyond the property itself. The promise of Mediterranean life — sun, coastline and more time spent outdoors — has long drawn people to Spain, offering the prospect of a different way of life as much as a home.

That appeal is reflected in a broader rise in demand for homes in Spain’s coastal areas. Although summer is not usually the busiest period for property transactions, interest in coastal homes rose by 30% across Spain this summer.

The strongest increases were recorded in the Balearic Islands, where demand rose by 35%, followed by the Costa del Sol at 30% and the Costa Blanca at 28%.

Yet the places attracting the most interest are also becoming among the hardest in which to deliver affordable new homes. As Pritchard puts it: “On the coast where we have the biggest pressure, that’s where it will be extremely difficult to do anything.”

With demand concentrated in these coastal locations, he argues that the costs and restrictions attached to new development make lower-priced housing increasingly difficult to build.

VPO land and the affordability problem

The tension is most visible in a plot owned by Taylor Wimpey Spain, where part of the development must be allocated to regulated housing.

It comes under the category VPO, or vivienda de protección oficial, a form of protected housing subject to public rules on matters including who can access it, how it is used and the price at which it can be sold.

This contrasts with vivienda libre, or free-market housing, where the sale price is set by supply and demand. It is not subject to specific public rules governing access, use or resale.

For the company, the problem is that these controls no longer align with the cost of building. The plot was bought around two to two-and-a-half years ago, when the scheme appeared to be financially workable. Revisiting the figures today, he says, produces a very different outcome.

“With the calculations today, we can’t build. It’s impossible to build those affordable housing properties…immediately we’ll make losses just starting to put a digger on there.”

It is a stark illustration of the difficulty he sees in reconciling protected-housing price limits with the realities of a new-build project.

Regulations, licensing delays and the rising cost of waiting

For developers, the financial pressure begins before construction work starts. Requirements affecting plot use and property sizes add another layer of complexity to affordable schemes, particularly where coastal demand is already intense.

The next hurdle is the building licence. Pritchard says what was once a relatively straightforward part of the development process has become “dreadful”.

Under Spanish law, he says licences should be granted within three months. In reality, his company has not received an approval in less than 12 months, while individual cases on the Costa Blanca and Mallorca have stretched to three, four or five years — and, in some instances, six.

That leaves developers holding land they have already paid for, often for 18 to 24 months before construction can begin. Building work itself typically takes another year and a half to two years, he says, followed by a further wait for final certificates before homes can be handed over.

He attributes part of the delay to understaffed local authorities and the mounting volume of files moving through municipal offices. The result, he says, is a system in which papers are processed one at a time, with little scope to speed up the queue.

For smaller firms, the length of that wait can be prohibitive.

“Today, I wouldn’t recommend anybody, especially if they’re a smaller business or a smaller builder, smaller developer, to go into building property or being a property developer anywhere in Europe probably, because you need to have a lot of money behind you, a lot of stamina behind you because otherwise you’re out.”

Labour shortage now the company’s leading risk

Once a project is licensed, another issue comes into view: finding enough people to build it. For Pritchard, the shortage of skilled labour is not a future concern but the company’s most significant current risk.

As a UK PLC, Taylor Wimpey carries out risk-management reviews every three months. Labour availability is currently at the top of that assessment, he says.

The immediate response is higher pay. But he believes the shortage has deeper roots in the aftermath of the 2008 financial and property crisis, when construction work became a less attractive career choice for many young people.

“After 2008, nobody wants to become a bricklayer, a carpenter, an electrician, a plumber. We’ve lost the whole generation. A generation is gone.”

Even an expansion of apprenticeships would take time to feed through into the workforce, he says.

State support and industrialised building proposed as solutions

In Pritchard’s view, solving the affordable-housing problem will require action beyond the construction industry. He argues that government and the state could support builders by releasing land for regulated-housing developments.

“I think that’s where the state, the government, has to come in and maybe support builders and constructors and give them the land, because they have land, give them the land to do that affordable housing.”