Could Shared Ownership Solve the Spanish Housing Crisis?

Legislation is under consideration by the Government of Catalonia that would allow for partial and temporary home ownership in a bid to solve Spain’s dramatic housing crisis.

Legislation for shared ownership under consideration in Spain

Inspired by the UK’s shared housing programme, legislation is under consideration by the Government of Catalonia that would allow for partial and temporary home ownership in a bid to solve Spain’s dramatic housing crisis which has devastated the country following the 2008 crash.

The Spanish housing crisis

Between 1996 and 2007, Spanish housing prices rose 200%. In the same period, more homes were built in Spain than in France, Germany, and the UK combined. And due to a lack of rental accommodation and social housing (only 2% of Spain’s total housing is social housing, compared with 35% in the Netherlands, 21% in the UK, and 17% in France), Spain also has one of the highest home ownerships statistics in the EU, at 85%.

Enter the 2008 global financial crisis and we see Spain suffer a dramatic economic downturn resulting in the collapse of the property market.

3.5 million jobs have disappeared, and there are almost 700,000 households with zero income (not even social security). Without welfare, (and thanks to too easily handed-out, dangerous mortgages) the number of tenant evictions and mortgage repossessions has soared. So many Spanish citizens have now committed suicide following repossession that a new movement has even been established, the Mortgage Victims Platform.

Years on and there is no end in sight: in 2013, almost 40,000 primary residences were repossessed, down only 1% from 2012. When secondary residencies are included, that total increases by 11% (Bank of Spain). The latest census shows 3.4 million houses are sitting empty, including about 440,000 unsold new ones.

The UK model of shared ownership

The shared ownership proposal currently under consideration – run by the Housing Research Group at Rovira i Virgili University in collaboration with the Spanish Ministry of Economy and Competitiveness (who hope to expand the programme to the rest of Spain) – seeks to make use of these empty homes.

Shared ownership allows buyers on lower incomes to purchase a portion of a property (e.g. 25%) with a down payment and mortgage (rather like rent), with the option to buy more shares in the property as they can afford to do so until full ownership: a staircase to outright ownership.

The dangers of shared ownership

But based on a study by researchers at Cambridge University looking at the British example, shared ownership does not come without problems.

The report says: “that while shared ownership remains a popular – and potentially beneficial – way of enabling first-time buyers to find secure and affordable housing, it also highlights problems such as the inability to secure a mortgage, poor demand from buyers, high upfront costs of sales, and delays to sales caused by inefficient housing associations”.

The study also found shared owners to be less mobile than outright owners. Too many part-buy and then stay put, unable to move up the staircase. And too many are struggling to sell (it’s far easier for those who own 100% of the property to move on).

It concludes that shared owners are left in limbo – unable to move for work or family -, neither owning nor renting but suffering the downsides of both: they cannot rent out the property, they have sole responsible for taxes, repairs, and maintenance, their rent rises over time, and they do not profit from the property’s increase in value, but the remaining portion of the property does see its value grow making it harder and harder to buy the remaining share.

Matching existing housing with buyers

But there are differences: in the UK, there is an urgent need for housing; in Spain, the problem is matching the existing, vacant housing with buyers on lower incomes. And of course, with so little social housing available in Spain, shared ownership could be of importance to those truly in need.

The legislation is currently being debated and should be passed by October, so we’ll have our answer then.