Spain’s Housing Squeeze Goes National. Price growth is no longer a city problem

Photo: Euro Weekly News.com

Spain’s housing market is accelerating again, but this time the surge is no longer confined to Madrid, Barcelona, or coastal hotspots. According to CaixaBank Research, double-digit price growth is now recorded in 73% of municipalities with more than 25,000 residents — a level not seen since 2006, on the eve of the last property crash. What once appeared to be an urban overheating is becoming a nationwide squeeze.

The ripple effect hits smaller towns

For years, buyers escaped rising city prices by moving outward to commuter towns and smaller cities. That safety valve is rapidly closing. As demand spills over, surrounding areas are experiencing the same dynamics: intense competition, rising asking prices, and dwindling affordability. The share of mid-sized cities with price growth above 10% has jumped sharply in just one year, while price declines have nearly disappeared.

Tourism is no longer the only driver

Tourist municipalities still lead price growth, but non-tourist areas are catching up quickly. The narrowing gap signals a structural issue rather than localized overheating. When both holiday destinations and ordinary towns see similar price dynamics, the market is being driven by a shortage of supply, not by niche demand.

Prices reach historic highs

In real terms, Spain’s housing market is now at a record level. Average free-market prices have surpassed €2,150 per square metre, with annual growth exceeding 12%, the fastest pace since 2005. The comparison with the mid-2000s is unavoidable, yet the underlying forces are very different.

This time, underbuilding is the core problem

Unlike the previous bubble, today’s surge is not fueled by easy credit or excessive construction. Spain is simply not building enough homes. Around 134,000 building permits were issued over the past year, while roughly 220,000 new households were formed. Worse still, actual housing completions fell by more than 11% year-on-year. The Bank of Spain has stressed that construction levels remain far below what demand would normally justify.

Why developers remain cautious

High prices have not translated into a construction boom. BBVA Research notes that development in Spain has become a low-return, high-risk activity. Lengthy planning processes, regulatory uncertainty over land use, rising material and labor costs, and a shortage of skilled workers have made projects slower and more capital-intensive. As a result, supply remains constrained despite strong demand.

Implications for buyers and renters

For buyers — particularly first-time purchasers — affordability is deteriorating not just in major cities, but across a widening geographic area. Renters face parallel pressure as limited supply pushes rents higher even in traditionally cheaper locations. The housing strain is spreading through the entire market.

Not a bubble, but a structural risk

Economists caution that this is not a replay of the 2008 crash. There is no credit frenzy or overbuilding. However, the speed and breadth of price growth point to a deeper affordability challenge. Without a substantial increase in housing supply, pressure is unlikely to ease, turning housing into one of Spain’s most persistent social and economic problems.

As reported by experts at International Investment, Spain’s housing market is facing a structural imbalance rather than a speculative bubble. The spread of rapid price growth beyond major cities reflects chronic underbuilding. Without faster construction and land-use reform, affordability pressures will intensify nationwide, increasing long-term risks for households and investors alike.