The dynamic of the Palma property market and, indeed that of most of the Island of Mallorca, is showing increasing signs of it falling in line with other premium locations across the globe. These cities, from New York to London, from Barcelona to Paris share one thing in common, they are premium brands, with limited supply and where demand is bolstered by free flowing international money. (Note: we will need to see how the Barcelona market reacts to all the political upheaval of late)
These are cities have been reinforced by globilisation. They are all united by a series of underlying characteristics – the attractiveness of the urban environment, a high quality of life, a broad offer of amenities, and excellent networks of international connections.
Understandably, with this massive flow of investment, the cultural and commercial offer continues to develop, the local economy thrives and this internationally driven “gentrification” takes ever firmer root. But as is always the case in a free market, these “benefits” come with a price which is another problem shared in these premium locations, namely that there is an increasing segment of the resident population that is finding it difficult, if not impossible, to satisfy their housing needs.
Compare Mallorca with rest of Spain when it comes to average mortgage payments. It is the highest in Spain –standing at 705 euros per month on average, compared to the 536 that are paid on average in the rest of the country. Add to that the problem of the rental market, where rents have skyrocketed driven by holiday rentals, and we can see how access to housing is becoming an important item on the political agenda.
We have already seen the introduction of new legislation associated with the holiday rental market and only time will tell what impact this will have, once the various individual Town Halls decide how the restrictions will be applied in each area. At the moment owners are not releasing their properties on to the longer term rental market, while they wait to see how this will all pan out, but at least, from a political perspective, the idea is that by reducing significantly the number of properties that can be rented short term ie to visitors / tourists, a large number of new properties will come back to the longer term leasehold market which in turn should drive down rental. Time will tell!
What makes Mallorca particularly vulnerable, in terms of marginalising an important segment of the population when it comes to accessing housing, is the economic structure of the Balearic Islands – basically a service economy with a relatively small number of professional / management level employment opportunities and very limited industrial employment. Consequence? A market that does not favor high salaries and employment contracts that are often temporary and seasonal. Low wages, underlying uncertainty in many employment contracts, and high house prices / rents are not good bed fellows!
Solutions? I don’t expect the demand side dynamic to change in terms of the flow of international capital. Nor do I see the supply side “giving” on the other (ie significant increases in new development to help balance the strong demand). So I expect prices to continue rising across the board although, as I said recently, at more modest and sustainable levels. In other words the market on it’s own isn’t going to solve the problem.
This means, in turn, that political solutions are needed. On the one hand politicians will need to work with the employers to see how wages can be increased and employment contracts improved and on the other a drive made to significantly increase the stock of social housing (to rent and buy).
To be fair first steps have been made. Unions and employers in the hotel and restaurant sectors of the market have agreed significant year on year increases in wages over the next 3 years, and it appears plans are about to be announced regarding a major injection of money into the social housing market.
Will it be enough? I fear not but, trying to look at life with the glass half full, I do hope some of these “structural” problems can be alleviated through well planned and proactive public intervention that finds consensus within the private sector. We are all in the same boat and a continuation of the problem of the “working poor” is difficult to justify in the 21st century.