There is a law of economics that is used in almost any circumstance and to explain almost any problem, that of supply and demand. If something goes up in price or becomes scarce, there is the recurring rule so that everything fits. Even when with that thinking tool, nothing fits. The usual manuals do a lot of harm.
Now we have it at our disposal with the prices of apartments and housing, which are rising despite the fact that the ECB is hooked on raising interest rates. According to the current reading, prices should have fallen at the rate of the increases approved by Christine Lagarde and her boys. The reading is simple, it costs more to finance the purchase, then the price must fall because more expensive money will reduce demand. Although this has been happening for a long time, it is an impossible dream for a majority of the population.
Curiously, for now, this has not been the case, on the contrary. Prices have climbed towards the sky and the square meter is already paid as before the burst of the real estate bubble prior to 2008. It is not known how long this phenomenon will last, but the first, and almost unanimous explanation that has been put on the table It has been... that of the law of supply and demand. There would be more demand, people wanting to buy apartments, than supply of these; ergo, prices go up.
Nobody seems to wonder how it is possible for demand to grow despite the fact that money is increasingly more expensive, banks grant fewer loans and the difficulties in purchasing, due to the loss of purchasing power due to inflation, grip so many people. Could it be that the ability of Spaniards to tighten their belts, and get money for housing, is infinite; can face, at the same time, the rise in prices and the rise in mortgages, without hundreds of thousands of new evictions in the courts. The conclusion, for those who formulate this analysis, is that supply must be encouraged by liberalizing land, increasing construction and promoting real estate development.
But perhaps the current phenomenon has a different explanation. Housing, despite the tighter family economies, has always been a refuge value. In many places in the world, but especially in Spain, where it was always thought, until 2008, that it would never drop in price. Now, the same thing happens again. With inflation that everyone perceives to be much higher than what the statistics reflect and with the money dying of disgust in the bank account, what better alternative than to buy a small apartment, which never, or almost, loses value, and Can you resell for a higher price when things return to normal?
How are these purchases financed? Well, with savings, either long-term or those accumulated during the confinement of the pandemic. That is why the sales data indicate that the number of mortgages has decreased, because the operations are paid in cash, a new denial that demand is rising. The ECB already says it and its vice president, Luis de Guindos, already made it clear in last Thursday's press conference that prices tend to fall throughout Europe.
That is to say, the increases are not a manifestation of the supposed imbalance between demand and supply, they are, first of all, of the financial moment and the search by those who have liquidity for outlets to avoid the loss of value of their money. . Inflation devours it while the sleep of the righteous sleeps in the bank accounts, and the stock market is only attractive to a few risk lovers. A financial calculation that is not derived from the situation of the construction or housing market. Although as a consequence it may aggravate or exacerbate the problems that this market may be suffering since the collapse of the crisis.
In reality, it is similar to markets such as the currency market, when the geopolitical situation becomes complicated and investors turn to the dollar, which rises, because they think it is the safest. Or that of oil, with speculators always on the lookout for a crisis that could excite fear of loss of supplies and trigger purchase requests. Every day passes with all kinds of products, including food and raw materials, which rise and fall due to financial speculation at different scales. In today's world, finance sets the pace of the economy.
And as always, it unbalances the balance of wealth in favor of those who have those resources to protect themselves from the guillotine of inflation and can invest, compared to those who always have to pay more, whether things are going up or when they are going down. Wrong Way.
It is still striking that this reasoning in exclusive terms of insufficient supply runs rampant in a country that has not yet fully clarified how many empty homes it has as a result of the unbridled speculation of the years of wine and roses prior to 2008.
We must remember recent history. The last real estate bubble, the one that burst in 2008, the largest in Spanish economic history and one of the three largest in the world at the time, occurred when there was the greatest supply of land available for the construction of homes; with the greatest weight of this activity in the Spanish economy; and with a plethora of housing supply (greater than that of all the major European economies combined). And despite this obvious excess supply, prices rose until it seemed like they would never stop. There are other arguments beyond that fantastic economics of the law of supply and demand.
Also, as now, there were other factors that converged to fuel the disaster, but the fundamental explanation had to be sought in finances, not in works, and in a failed market. Euro rates were at rock bottom, while inflation was sky-high in Spain and instead of investing cheap money in sectors or activities with added value, everyone was pushed to buy apartments. To the point that anyone who didn't do it was considered a fool. Including the most helpless to whom no one explained that they were going to end up paying the price.
