Why are houses in Mallorca so expensive?

Thursday, 14 October, 2021

The builders point out three factors mainly

Access to housing is one of the main problems that the citizens of Mallorca have. Faced with this situation, many people wonder why homes on the Island are so expensive, compared to those sold on the Peninsula.
The manager of the Balearic Builders Association, Sandra Verger, explains that the price of housing is so high on the island, it is so high for three main reasons.

The first of these is that on the Island the land is limited, and consequently, the land available to build. This means that its price has skyrocketed and the Balearic Islands have the most expensive square meter in Spain on average. Faced with this situation, the builders call on the Consell de Mallorca and the town councils for urban planning measures to make better use of the available land. In this way, more buildings could be built.

Another reason that makes the price of housing more expensive is that there is a lot of demand from foreigners, who do have economic possibilities to buy real estate at higher prices than residents, due to their greater purchasing power.
Finally, the shortage of building materials has increased the price of housing by 17%. In the last year there have been price increases that exceed 100%, in the case of copper. Wood has become 30% more expensive, as has steel; corrugated steel, 78%; aluminum, 56%; bituminous mixtures, 85%; and PVC pipes, 70%. To this must be added the cost of insularity.

All these circumstances have led to access to housing becoming one of the main problems for Majorcans, especially the youngest. Many of them have to continue living with their parents, despite wanting to become independent.

The opinion of economists

Luis García Langa, director of Corredordefondos.com, explains that “as in all assets, the price of real estate works by supply-demand. In the Balearic Islands, supply problems can be separated into four:

The first is the serious problems of concession and agility in licenses. “This stoppage causes construction to be long delayed and ultimately creates a bottleneck. It is clear that construction must be ecologically sustainable but it must be possible to build and above all to rehabilitate. It also takes forever, especially in some municipalities, to grant permission for major work to rehabilitate.

The second is “the need for many homeowners to sell their homes at prices higher than their purchase, either because they don't want to lose, or because they have a mortgage to cover. If this always happens, the real estate market works like a pyramid in which nobody could lose and would always climb. Taking into account that a housing bubble has passed, having prices higher than it is a problem ”.

The third is the factor of foreigners, who tend to buy houses with high amounts. “When it comes to statistics, they add up to a lot for the amount but it does not affect all ranges of the homes. Obviously it does not help but, at least for the moment, a middle class person is less affected. Of course, while in Mallorca we continue to have problems of net salaries (before taxes) that are so low, either due to the low qualification of workers, due to how little wages are linked to productivity and due to seasonality, this problem may increase and become the principal ».

The fourth is «the rising cost of supplies, which is something general for all areas: steel, copper, lithium, fuel to bring it, energy ... it is a social problem that is bad for everyone (except for the producers of these raw materials) but in the Balearic Islands we add the seasonal factor and the costs necessary to bring according to what material. Cost that the Balearic economy has been claiming for years via a REB that never arrives ».

Pau A. Monserrat, member of the CES and professor at the UIB, states that “housing in the Balearic Islands is expensive and will continue to be due to a basic economic issue: there is a lot of demand, people who want to buy or rent, and a supply of housing limited. When demand grows and supply remains more or less stable, prices rise. No more no less".

In his view, to attack the problem of access to housing “the easy measure for the politician, and of little or no effectiveness, in practice is to limit prices. The perverse effects are of different types: appearance of a powerful black market (a part of the sale or rental price is paid in black), search for alternative markets (if the rental price is limited, the owners prefer to sell to rent) , even more demanding selection of the tenant (which would leave out the groups with more problems to rent), among other undesirable effects ».

I think Monserrat should bet on increasing the supply of real estate, but it requires planning time, public and private money. "We are talking, in the case of rent, of encouraging owners to want to rent, which goes through aid to reform, direct or indirect, improvement of legislation so that non-payment is expensive, etc.".

“As for construction, the possibility of increasing plants will have to be studied, since some limited islands cannot grow real estate across the width, but must do so at the top, allow smaller houses for one-person families, and so on. It is also essential to have a high number of publicly managed properties in VPO on a rental basis, well managed. Property VPO ends up generating black sales, skipping the legal maximum price, as we have seen in the previous real estate bubble ”.

Finally, he points out the need for "truly quality public transport, which would allow many families to rent or buy outside urban areas, a cheaper option."

«In other words, incentives and aid for owners and potential buyers and tenants. The opposite of what is being considered at the moment, I'm afraid, "he concludes.

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