Interview with the director of the UPV (Valencia university) Property & Housing degree chair, Fernando Cos-Gayón

1/10/2024 – Source: Valencia Plaza (very good information about Valencia in Spanish)

Excellent interview about new build projects in Valencia and the situation of rental and buying property in Valencia from a Valencian resident point of view. 

VPO in Spanish is “Vivienda de protection official” which translates as something like “protected subsidised housing”.

VALENCIA. The tension in the housing market in Spain has reached such a level that it has made it impossible for many families to access it. And the situation in Valencia and its metropolitan area is more than worrying with a shortage of new construction supply and prices that have been rising for years and without control. In fact, the ‘cap i casal’ is already one of the cities with the highest prices in the country and which has registered the largest increases, both in sales and rentals, in recent years. And the scenario is not at all hopeful for the coming years.

“In the medium term, a drama awaits us,” warns Fernando Cos-Gayón, director of the Housing Observatory Chair at the Polytechnic University of Valencia (UPV). Founded in 2017 by different agents in the sector, from developers to marketers, managers and universities, the Chair has been warning of the imbalance in the real estate market since 2019 in its quarterly reports, which it produces with Big Data and analyzing nearly 50 indicators. A “choral voice” that aims to predict the evolution of the market in order to anticipate and find solutions.

Thus, for years, it has been calling on the Administration to take measures to avoid the collapse of housing, pointing, in this sense, to the need to increase supply given the shortage of product and the growth in demand. But it has been too late and the situation has reached “dramatic and tense levels,” says its director. For this reason, and although the new regional government of Carlos Mazón has presented a new decree to reactivate the VPO in the Comunitat, something that the Chair demanded, Cos-Gayón remembers that these houses will not be finished until three years from now, so that in the meantime other solutions are urgently needed given the seriousness of the situation.

“The activation of public housing was necessary, but we must remember that the projects are for three years, between processing and construction, so the only option in the short term are empty houses, those that we already have built,” stresses the director of the Higher Technical School of Building Engineering of the UPV. In fact, he warns that price increases will continue and the offer will continue to be minimal in Valencia and its metropolitan area, although he foresees that the market can begin to improve in five years if new projects come out.

-The Chair has been warning for years about the decline in the supply of new construction and the escalation in prices caused by this situation, but how has it come to the current housing emergency?

-Not by using data as a basis for decisions. Political decisions have been made with the intention of helping and with good intentions, but often based on clichés or on things that have not happened. Therefore, what has happened over time is that the low availability of housing, derived from the great crisis of 2008, has been combined with a battery of solutions that have worsened the situation. Specifically, in the Valencian Community, models are beginning to be put on the table that have not ended up working, focusing on social housing, but with an approach that does not give any results.

On the other hand, in the matter of rent, the decisions have not been directed towards increasing the supply, but rather by its conditioning. Furthermore, demand has been rewarded, trying to help it enter the buying and selling market through ICO or IVF loans, despite the fact that there is little product and that is increasing demand even more while there is hardly any housing to buy.

-But if there is demand in the market, why is there no construction?

-The question is that when we see a crane, those houses are already sold. The underlying problem, and one that our leaders do not quite understand, is that according to data from the INE and the Bank of Spain, we are going to increase the population in Spain by 4 million in the next 15 years. This means that in a city like Valencia, the population is going to increase in the order of 10,000 inhabitants per year and by 2050 we will be a city of 1,050,000 inhabitants, 250,000 more people than now. This year alone, Valencia has already grown by 11,000 people compared to 2023. Therefore, assuming that the average is two people per household, 5,000 homes are needed per year.

-And what is the current supply?

-Right now there are 400 homes for sale for a city of 850,000 inhabitants, that is, we have to multiply that production by ten because, in addition, we have a lot of migration and many people between 18 and 35 years old are going to come, who join with young people who want to become independent.

-What are the main obstacles to not building more and meeting that demand? Experts point to the lack of land, but are there other factors that are preventing real estate development?

-The first thing you need to have a product is raw material, which in the case of real estate is land, and there is none. And the second is the cost of construction, which began as a problem in 2019 and became a ‘big problem’ with the pandemic, with a bottleneck in supplies. Added to this is the war in Ukraine and inflation has skyrocketed, above 10%, and prices have not yet fallen. The truth is that some materials such as metals have been reduced, but not the costs of construction because as there is not much land, what there is has a very high price.

-Valencia City Council has already announced the reactivation of several urban development plans, including the creation of a new land bank in Benimàmet, but the city’s capacity is what it is, being surrounded by protected orchards and the sea. Where else can it grow to be able to take on this increase in population?

-Valencia is going to grow, but obviously we are not going to destroy our natural environment to live here. In this way, what we will have to do is really get to unlock all that land and do it quickly. In fact, if it had been done gradually we would not be in this situation. If all public land were mobilised and more protected housing were created, the city would be less stressed.

But, in addition, the metropolitan area should have been considered as a large sector some time ago, something that already happens in most European cities, with public transport that means that you do not have to think that being in Xirivella means taking an hour to get to the UPV, for example. The objective must be to improve the metropolitan area because there is land in some areas and in others it can be generated, but mobility must be improved so that the city is perfectly connected and more so taking into account that land is finite in the city of Valencia.

-Is supply the only way to control prices or are there other solutions?

-Supply is not only improved by expanding it, but it would also greatly ease tension if the Government’s disastrous Housing Law eliminated two terrible and harmful effects such as price caps, which have never worked. In the end, if more housing is available for sale or rent, many people will find a housing solution and will not have to buy a VPO. There are people who do not want to buy, but if the rent costs 1,500-1,600 euros to rent, many prefer it. How do you ensure that this does not happen? With reasonable rental prices that are below a mortgage. Renting is really a way of intervening in the supply of new construction directly and that is what has to be considered. If we do not stop shrinking a market like the rental market, the other option will grow, which is buying, where the supply does not increase and that is why we have a problem. The solution is to regulate, but to encourage more construction and to bring empty housing onto the market.

-What do you mean by empty housing? Do you have an estimate of how many there are in the city?

-The city of Valencia surely has more than 4,000-5,000 units. They are unused housing, many of which need to be adapted. Just by walking through the city’s neighbourhoods you can see them, but nothing is done and with help from the Next Generation funds they could be adapted, also promoting neighbourhood life. It is another way of acting that is necessary and would be a niche of opportunity, but we must not think that they are available now, but rather that an investment must be made by the owner.

-And why is there no focus being placed on that?

-Because data is not being worked on. We have heard on occasion that housing is political, and indeed it is, but politics is there to solve problems, and what you cannot do is have a preconceived idea and apply it without knowing that the data say the opposite. There has been talk of empty houses, but to use them against those who say that there is a lack of housing. Why, in a market as interesting for the owner as the rental market with prices of 1,600 euros, do they not take them out? Because of legal uncertainty and because many times that property is not in habitable conditions. The focus is not on ideology again, which of course must be had to think of housing as a constitutional right, but applying it with data or we will crash. And what is happening is that the policies that, with good intentions, are trying to protect the most vulnerable, in the end are leaving them in a more exposed situation.

-Is the sector still demonised?

-Absolutely. Society has a very outdated perception of the role of the developer. The crisis took almost everyone down, but those who survived

-In view of the current situation, could there be a time when new construction and development activity will slow down?

-In this quarter’s report I already indicated that supply has stabilised and has not dropped. We are at similar numbers and there are other developments underway, but they have not gone on sale for commercial reasons and because they are selling as they are. However, what sets the prices is what is on sale. So, what we see is that we have already reached the lowest level of production. However, unfortunately the price has shot up again. The problem is that demand continues to grow by leaps and bounds. Right now it has also grown due to IVF and ICO loans.

-Previously you have also hinted that these aids are causing more tension because they encourage a demand that cannot find supply. Are they harming more than contributing to the solution?

-In a market in which the stock has been broken, demand cannot be boosted. Are they a solution? Yes, but when there is supply because otherwise that demand will become greater.

-Is the Valencian housing market going to get worse in the coming months?

-What our predictions indicate is a price increase of more than 3% each quarter and that is 14% in one year. These are crazy prices and with large differences by neighborhood. In the medium term, a drama awaits us because the solution to protected housing is three years away, which is the time it takes to process and build. Therefore, the only option is empty housing, but with real action, and for that, a State Pact is needed because the autonomous community cannot change the state law. It is true that with the polarization that has been generated, this is almost utopian and almost impossible with the composition of the current block of the Government of Spain. However, the short-term solution should be that those houses that we have already built can be removed.

-In recent years, your reports warned of the risk of informal settlements… Are they already a reality?

-Informal settlements, which we have been warning about, consist of people building their own house in the way they can and in the place they can. We do not have a fortune teller, but what is growing is immigration, which arrives massively with low incomes and cannot rent a room for 500 euros. Therefore, the risk of informal settlements is already a reality. In some cities it is more pronounced than in others and here in Valencia we are unfortunately going to see it proliferate because if protected housing starts to come into operation, after the approval of the new decree, the properties will not be available in less than two years. However, if the limits on rent are removed and legal security is offered, protecting the owner and not the squatter, perhaps the situation will be different. But if nothing is done, we will surely have informal settlements.

-Entering the rental segment, you have considered the Housing Law and price controls to be “disastrous”. What have been their effects?

-The same as in Paris, London or Berlin, which lowers supply. When you set limits, what you do is that those properties above that maximum price go off the market, but that is not the worst effect, but rather that those that are close to that price go up to that limit, causing those with less money to be left without their potential offer. Therefore, on average, prices go up, which is what has happened in Barcelona, ​​which is the city that has become more expensive in all of Spain.

-But Valencia does not have limits, and the offer has also gone down, and prices continue to skyrocket.

-Yes, but they have skyrocketed less than half as much as in Barcelona.

-Has the ceiling been reached in the Comunitat and specifically the ‘cap i casal’ or will they continue to rise?

-They are growing a little, but stabilising because they are prices that can no longer be paid. Rent is becoming a little less tense due to the flexible solutions that have emerged in the market and student residences. The problem is in the rooms, where there is a transfer of the entire rent and that must be regulated.

– Is room rentals an upward trend?

– Yes. For example, in the rest of Europe it is beginning to weaken because it is beginning to be regulated and to be required minimum vices, given that it is a tertiary sector. And that is what must be done in Spain. Beyond stigmatising those who are doing it, we must see how to resolve this situation and, to do so, the Administration must, in addition to regulating, create social rental housing.

-In recent months, the debate has focused on the control of tourist apartments to reduce the pressure on rent. Have they had anything to do with prices? What is the real impact of holiday rentals on access to housing?

-In global terms, in the Valencian Community the impact is almost zero, but in certain neighbourhoods of Valencia, it is very important. In any case, on average it does not have a significant impact and it is not the main problem. Tourist apartments must be regulated, but the question is to see what type of tourism and productive sector we want. That is what is really relevant. They are growing extraordinarily in commercial premises that were in disuse and that was not housing before. Therefore, they do not affect the price because the majority of rentals are not being used for tourism. In the cases where this does occur, it is due to a lack of legal security, but I insist that it mostly has no impact. It is an interested debate to avoid passing the buck. It is true that everything is part of the solution, but the main problem is not that, but rather that it is a patch.

-You have commented that the market has been relaxed by the appearance of new flexible accommodation formulas such as coliving or flex living. Are they part of the solution?

-They are a solution for a type of population that is not choosing a room, but that is not immigration. Therefore, they help part of the demand to leave a flat or a room empty, so they are a solution for a type of population and demand, but that is not the majority.

-One of the Chair’s main demands was the reactivation of protected housing, better known as VPO. The Consell has presented a new decree, pending approval. Will it help to reverse the current situation in the region?

-I am convinced. From the Chair we value very positively the introduction of youth housing because that will achieve a housing solution for this group.

-Until now, how much VPO was being built?

-At this time, there were no more than 200 homes because the numbers do not add up, but there is still a very important handicap and it is the cost of construction.

-Have costs been the factor that explains the rise of the module from 2,200 euros per useful square meter at most to 2,400 euros? Was this increase necessary given the current situation of rising prices and which will lead to a VPO home costing 200,000 euros?

Valencia Parc Central new development

-In the end, the decree creates a young home with a maximum of 60 usable square metres that will cost 144,000 euros without a parking space. Is that expensive when in Valencia the average price is 3,500 euros per square metre? With a parking space it will be 153,000 euros. I think it is a reasonable price for a two-bedroom, two-bathroom flat. The problem is how much it costs to build those 60 usable square metres, which are 80 square metres built with common elements. Right now, the costs are 1,300 euros, which is 104,000 euros of the 153,000 euros for a protected home with a garage. To this we must add the price of land, the fees of technicians, licenses… Therefore, the promoter’s margin is shrinking.

-How do you explain the liberalization of VPO and its possibility of sale when the public housing stock needs to be expanded to promote affordable rent?

-If you make affordable housing, the demand for rent will shift to purchase and prices will relax. Right now, for many, renting is the only option, so there is a lot of borrowed and indirect demand. Our bet, and this has been included in the decree, is that the module cannot rise indefinitely because then it will be impossible to buy protected housing. One of the objectives is to give an option to people with a not very high but stable salary, so that in the first stage of their life they can live in a smaller house of 60 useful square meters and then they can go to live in another one and it does not have to be the definitive one. The problem is that we have taught the new generations that the house you buy has to be big and, for that reason, the option of sale has been introduced for this group with the aim of giving them an exit door because otherwise they will not get in.

-Once it is approved, do you have an estimate of how many homes could immediately come into operation?

-We believe that over 50 developments of more than 50 homes could begin almost immediately between February and March only in the metropolitan area of ​​Valencia in cities such as Sagunt or Torrent, but also in Alicante city. We see that there is movement in the promotors. The sector wants security more than profitability and that is what VPO offers.

-The approval of this decree is a commitment by the Consell within the framework of its legislative plan to build 10,000 new homes in the Valencian Community. Do you see this plan as realistic and possible?

-Right now, thinking that in two and a half years we will have finished developments is very difficult, but we will see that they are started. Only the prospect of that happening can ease tension in the market.

-Does the Chair feel more listened to now than under the previous Consell del Botànic?

-What we see is that the policies that are being implemented now are based on objective data and are acting on the side that is needed, which is supply and not demand. That is why the policy is now appropriate, because it has a lot of influence on supply. In general terms, we see that decisions are being made with data and not by instructions.

-What new duties do you impose on the Valencian Administration?

-The processing of licenses continues to be a disastrous issue at a general level. Something that would change this situation is if there were positive administrative silence, which already exists in other matters. Many developments do not have a license because there are other applications with more priority that the same technicians have to report on. We cannot wait 14 months because that compromises the viability of the projects.

There is also the tax issue. There should be a State Pact because VAT on housing does not make any sense and even less so on VPO. It does not make sense, but it is not done for the purpose of revenue collection. We all have to run and the Administration should not only provide the framework, but also accompany it.

-What predictions do you have for the housing market in Valencia in the coming years?

-The prediction for one year is that we will go to a price of 14% if things do not change. If in the next 2-3 years we get 2,500 new homes, the price will be reduced. We therefore understand that in 5 years the scenario will be very different: less tense, for sure, but with an extreme risk of informal settlements because even if the new construction market improves, rent will cost more.