Spain’s Property Prices Hit Record Highs – And They’re Set to Keep Rising

Spain’s real estate market has reached new historic peaks in 2025, with house prices surpassing their 2008 bubble-era highs — and experts say the surge is far from over.

According to Raymundo Larraín Nesbitt of Larraín Nesbitt Abogados, property values will continue their upward climb in the short and medium term, fuelled not by speculative frenzy, as in the past, but by structural factors — chiefly, a severe housing supply shortage.

A Different Kind of Boom

Unlike the 2008 crash, where speculation and easy credit led to an unsustainable bubble, today’s property boom is driven by solid fundamentals: too many buyers chasing too few homes. The imbalance between housing demand and limited new construction has created a supply crunch, pushing both sales and rental prices to new heights.

Large cities such as Madrid, Barcelona, Malaga, and Valencia — along with popular coastal areas — have seen double-digit price increases year-on-year. Even areas outside these hotspots have experienced an average rise of 8%. Meanwhile, wages have remained relatively stagnant, making affordability a growing concern.

Why Prices Keep Climbing

The post-Covid era has contributed to the surge. A combination of pent-up demand, record levels of savings, inflation caused by global Quantitative Easing, and ongoing supply chain disruptions have all played a role. In Spain specifically, the situation is worsened by:

• Severe housing undersupply: With fewer than 90,000 new homes built annually — well below the estimated demand of 500,000 — the gap continues to widen.
• Heavy bureaucracy: Lengthy and costly administrative processes discourage developers from launching new projects.
• Misguided housing policies: Recent laws aimed at tenant protection have backfired, with landlords pulling properties from the market, reducing supply, and driving up rents.
• Labour shortages: A lack of skilled construction workers, especially younger ones, has limited new development.
• Little social housing: Despite promises, the central government has built almost no public housing in recent years, while some regional governments have stepped in to fill the gap.
• Aging, ill-located housing stock: Many properties built during the 2008 boom remain uninhabited due to poor planning and infrastructure.

Policy Backlash and Economic Risks

Rather than addressing the root cause — limited housing supply — the Spanish government has introduced higher taxes and punitive measures that may further discourage investment. Upcoming tax hikes, such as a 21% VAT on tourist rentals and new levies on non-EU property buyers, risk scaring away both domestic and foreign investors.

Blaming foreigners and tourism for the housing crisis, though politically convenient, lacks data support. Tourist accommodations represent less than 1% of Spain’s housing stock. Meanwhile, tourism remains a pillar of the Spanish economy, accounting for nearly 20% of GDP.

What Can Be Done?

Larraín Nesbitt proposes several practical steps to ease the crisis:

• Streamline bureaucratic red tape to speed up new developments.
• Launch a nationwide social housing program.
• Offer long-term tax breaks for mortgage holders, first-time buyers, and vulnerable families.
• Encourage regional and local governments to release land for development.
• Reduce dependency on property-related taxes, which currently inflate home prices by up to 30%.

No Short-Term Fix in Sight

Even if Spain were to implement bold reforms today, it would take years for new homes to reach the market. Given the current political gridlock and lack of consensus, real change seems unlikely in the near term.

As a result, prices are expected to continue rising — particularly for new-build homes — with no significant relief on the horizon. Only a major geopolitical shock or drastic intervention could alter this course.

For now, Spain’s property market remains on an upward trajectory, and prospective buyers will need to navigate rising costs, fierce competition, and a tightening regulatory environment.

Source: Idealista, July 2025