But why on earth are apartment prices rising?

there is a law of economics that is used in almost any circumstance and to explain almost any problem, that of supply and demand.

Oliver Thansan
Oliver Thansan
16 September 2023 Saturday 11:16
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But why on earth are apartment prices rising?

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 is in short supply, there is the recurrent rule so that everything fits. Even when with this tool of thought, nothing fits. User manuals do a lot of damage.

Now we have it at our disposal with the prices of flats, housing, which are rising despite the fact that the ECB is attached to the rise in interest rates. According to the reading in use, prices should have gone down at the pace of the elks approved by Christine Lagarde and her boys. The reading is simple, it costs more to finance the purchase, then the price must go down because the more expensive money will reduce demand. Although this has been happening for a long time, it is an impossible dream for a majority percentage of the population.

Curiously, at the moment, it has not been like that, on the contrary. Prices have skyrocketed and the square meter is already paid as it was before the bursting of the real estate bubble before 2008. It is not known how long this phenomenon will last, but the first and almost unanimous explanation that has been put forward on the table has been... that of the law of supply and demand. There would be more demand, people wanting to buy flats, than supply of these; ergo, prices go up.

No one seems to question how it is possible for demand to grow despite the fact that money is becoming more expensive, banks are granting less credit, and the difficulty of buying, due to the loss of purchasing power due to inflation, grips so many people. It may be that the capacity of the Spanish to tighten their belts and take out money for housing is infinite; it can cope, at the same time, with the rise in prices and that of mortgages, without hundreds of thousands of new evicted people in the courts. The conclusion, for those formulating this analysis, is that the offer 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 narrowest family economies, has always been a shelter value. In many places in the world, but especially in Spain, where it was always thought, until 2008, that the price would never drop. Now, the same thing is happening again. With inflation that everyone perceives to be much higher than the statistics reflect and with the money dead in disgust in the bank account, what better alternative than to buy a flat, which never, or almost never, loses value and can be resold for a higher price when things return to normal?

How are these purchases financed? Well, with the savings, either long-term, or those accumulated during the confinement of the pandemic. This is why sales data indicate that the number of mortgages has fallen, because transactions are paid in cash, a further denial that demand is rising. The ECB already says so and its vice president, Luis de Guindos, already made it clear at Thursday's press conference that prices tend to fall across Europe.

That is to say, the increases are not a manifestation of the supposed imbalance between demand and supply, they are primarily of the financial moment and of the search by those who have exit liquidity to avoid the loss of value of their money. Inflation devours him while the righteous sleep in their bank accounts, and the stock market is only attractive to a few risk-takers. A financial calculation that is not derived from the state of the construction or housing market. Although as a consequence it may aggravate or exacerbate the problems that this market may be suffering from since the collapse of the crisis.

In reality, it resembles markets like the currency market when the geopolitical situation gets complicated and investors go 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 the fear of the loss of supplies and trigger purchase requests. It happens every day with all kinds of products, including food and raw materials, which go up and down due to financial speculation on different scales. In today's world, finance sets the pace of the economy.

And as always, it skews the balance of wealth in favor of those who have these resources to protect themselves from the guillotine of inflation and can invest, versus those who always have to pay more, whether things go up or when they do they do in the opposite direction.

It is still striking that this reasoning in exclusive terms of insufficient supply is in the air in a country that has not yet finished clarifying how many empty homes it has as a result of the excessive speculation of the years of flowers and violets before 2008.

Recent history must be remembered. 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, happened when there was the greatest supply of available land for the housing construction; with the greatest weight of this activity in the Spanish economy and with a plethoric housing supply (higher than that of all the major European economies combined). And despite this obvious oversupply, prices rose until it seemed like they would never stop doing so. There are other arguments beyond this fantastic economics of the law of supply and demand.

Also, as now, there were more factors that converged to feed the disaster, but the fundamental explanation had to be sought in finance, and not in the works, and in a failed market. The rates of the euro were on the ground, while inflation was walking through the clouds in Spain and instead of investing the cheap money in sectors with added value, everyone was pushed to buy flats. To the point that anyone who didn't was considered a fool. Including the most helpless, to whom no one explained that they would end up paying for the broken dishes.