The Banco de España has issued a stark warning regarding the impact of holiday rental demand on residential housing availability in tourist-heavy regions of Spain.

According to the central bank's latest annual report, up to 50% of potential residential properties have been diverted from their intended function in heavily touristed areas such as the Balearic Islands, the Canary Islands, and the Mediterranean coastline.

This diversion has resulted in a decreased capacity to accommodate new households forming in these locations.

The report indicates that the growth of alternative housing models, including seasonal rentals and tourist accommodations, continues to expand, potentially constraining the availability of residential rental properties in a context of limited public and private investment in the housing market.

In the Balearic Islands and Canary Islands, it is estimated that more than 50% of residential capacity has been lost to tourism-related uses and ownership by non-residents.

Other regions such as Málaga and Alicante also exhibit significant levels of loss, with around 40% and 35% of residential properties, respectively, being taken off the market for traditional residential use.

The proliferation of vacation rentals, largely driven by digital platforms, coupled with international demand, has removed hundreds of thousands of homes from the reach of individuals and families seeking residence in those areas.

The Ministry of Housing corroborates these findings, emphasizing that a considerable portion of the available rental market remains unregulated.

Estimates suggest that regulatory pressures have led to the conversion of approximately 50,000 tourist properties back into residential use over the last year.

Ownership by non-residents is another point of concern, with recent data indicating that this demographic now accounts for 8.4% of total property transactions in Spain.

The Banco de España notes a stark contrast in the market, reporting that there are currently 39% more properties designated for non-residential use than there are actual homes.

This discrepancy highlights the potential of the housing stock if these properties were mobilized for residential purposes, but also underscores severe regional disparities.

In population-dense provinces like Madrid and Barcelona, the ability to absorb additional households falls sharply to 14% and 13%, respectively.

This suggests that even if all second homes, vacation rentals, and empty properties were utilized, these major cities could only accommodate a combined total of 700,000 new households, a number that pales in comparison to the demand.

Conversely, in regions experiencing population decline, such as Ávila, Soria, and Teruel, there are significantly more available properties than households.

These provinces exhibit a capacity greater than 100%—essentially having double the number of potential residences compared to households—yet they struggle with insufficient population levels to fill these homes.

Fourteen provinces, including three in the Basque Country, Pontevedra, Las Palmas, and Tenerife, are reported to have fewer available homes than the national average, further complicating the ability to house new residents.

The report lays bare a chronic imbalance in Spain’s housing market, citing that new households are being formed at a rate exceeding the market's ability to provide adequate housing.

Due to insufficient new construction, a projected shortfall of 450,000 units is expected as the number of new homes lags behind household formation from 2022 to 2024. The Banco de España previously identified a total housing deficit of approximately 600,000 units, which has recently been revised upwards by an additional 80,000.

This deficit is unevenly distributed, with half of the shortfall concentrated in just five provinces: Madrid, Barcelona, Valencia, Alicante, and Málaga—areas characterized by high demographic and economic magnetism.

Since 2022, in response to limited new construction, authorities have sought to optimize available housing resources, recovering second homes and vacant properties, as well as renovating commercial spaces into residential units.

However, these efforts have not sufficiently alleviated market pressures.

Consequently, the housing market continues to experience upward price pressures, with a reported 8.7% rise in real housing prices during the last quarter of 2024 compared to the previous year.

Prices have surged by 40% since the lows of 2014 following the previous housing crisis, with new homes seeing a 62% increase and existing homes a 36% rise.

Rental markets have also tightened, with average real rent per square meter increasing by 12.5% between 2015 and 2023, excluding regions such as the Basque Country and Navarra.

The trend of rising rental prices is especially pronounced in major urban centers and popular tourist destinations, exacerbating territorial and social inequalities.

New lease agreements indicate a potential for even steeper price increases, with rental costs for new contracts increasing by more than 10% between 2022 and 2023. This trend jeopardizes access to housing for younger renters and those on lower to middle incomes, particularly as many families are compelled to allocate a significant portion of their income to meet rental demands.

The Banco de España notes this phenomenon leads to heightened financial stress and vulnerabilities among households residing in rental properties.