Challenges of public housing in Spain: budget, cheap debt, land and rental security

Simultaneously with the ceremony to hand over the managers’ new portfolios, the Madrid Association of Economists organized a day at the Real Estate Economists Forum on what the main challenges will be for both the private sector and the public. To provide public housing stock to the country. In the last legislature the Government presented itself with a challenge: Ensuring that 20% of the residential park has a public character within 20 years. A priori, this is a utopian goal because, according to a report published a few months ago by the ESADE business school, “the stock of social flats should increase every year by the total available today”.

Equal housing with healthcare

The first precaution demanded by real estate experts is to ensure that the public housing policy is provided with a budget. Alejandra MoraA partner at Arenhos Advisors, a consultancy firm for capitals looking to invest in affordable housing rentals, compared healthcare to housing: “There are two rights in the same place in the Spanish Constitution: the right to protection of health and housing. They are in the same place, but today Different treatment in budget matters“.

In the same line, Manel RodríguezThe partner and consultant at the Salas Foundation, a non-profit organization that has developed nearly 2,000 homes at affordable prices with the help of Grupo Salas and different managements, added: “If we want below-market quasi-public housing stock, Public investment is needed, as in health. “Different governments should allocate a sustained, long-term budget to create more housing.”

Javier BrazaLagoon Living, co-founder and CEO of management company Lagoon Living, which develops housing in public-private cooperation with Malaga City Council and has the backing of Swedish capital, also requested more funding: “Historically, There has always been assistance for housing development. However, in 2022, the budget of the Ministry of Transport, Mobility and Urban Agenda was only 905 million euros; This is an amount that cannot be compared to other portfolios. “We must roll back measures that have worked in the past.”

Financing at low rates

One of the main obstacles to housing development, especially in an affordable regime, is financing. In the current interest rate environment, this task appears more complex. This was one of the reasons why, in the previous legislature, the Government announced a mobilization of €4,000 million through the ICO and announced that European funds would be mobilized to finance the promotion of the supply of new housing at below-market rental prices.

According to Manel Rodríguez, the funds that the ICO will process are “necessary”. “We cannot finance the promotion of such properties through traditional bankingWhile alternative financing is unaffordable. We need capital from European funds. We see agility in the processing process and although we see a potential crash, the agreement between the Ministry and the ICO will close. “In our opinion, the ICO does not have the structure to manage 4 billion euros,” he added. The director of the Salas Foundation claims: Financing, yes or yes, must be at a fixed rate and below 4%. “In Catalonia we managed to finance promotions between 2.7% and 2.95%, but public subsidy was also included to reduce the rate,” he said.

Ramon RuizVisoren, the managing partner of Catalan origin who specializes in officially protected and rented properties, explained why cheap financing is needed to realize these projects: “We believe that it is possible to make social housing investment profitable. We have 1,300 houses.” Nearly 30 contracts have been signed with different managements and these are very long-term projects. This is a very stable business model but its profitability is very low.If managed well, it is an attractive business area for pension funds and insurance companies. This is not a real estate business, it is a finance and management business.” In this regard, Javier Braza commented that the returns on such assets are comparable to someone else’s returns. fixed income bondan offer net profitability between 4.3% and 4.5%.

More public land and guarantees on rent collection

The promotion of properties designed to be rented at below market prices involves the public administration giving up the land it owns. This is not a new format. In recent years, various public-private partnership schemes have been supported in which public companies undertake apartment construction and rental management for periods ranging from 45 to 80 years. The Community of Madrid, the Generalitat Valenciana and the municipal councils of Madrid, Barcelona and Malaga have ambitious plans. Ramón Ruiz made a request: “We are already building housing, but we need more land because this is a public service“.

According to all experts, the availability of these lands depends on the preparation of specifications suitable for the needs of the private sector. “For us, owning a rental house is like owning an infrastructure asset that we cannot risk being exploited,” he said. Raul BlascoHe is the CEO of Bialto, the management platform that operates the rental houses of the management company DWS, which has 1,700 Plan Vive apartments in the Madrid Region. “We see that the current demand for rental products in Spain is not the demand for infrastructure funds. Therefore, we cannot have non-payment or delay. It must be the administration that undertakes the collection of these rents: or the administration undertakes the collection of these rents, or leaves the tenant to us. For example, in the Vive Plan, the candidates are listed in chronological order “We have to accept it accordingly. If a person is on the list of those who do not pay their debts, we have to rent the houses to them,” he added.

The manager recommends that the specifications include: make a non-payment insurance contract, stated that he was a creditor, and took the opportunity to reproach that the amendment made to the Urban Leases Law (LAU) in the Housing Law made evictions more difficult. “There is a desire in the administration to listen to the private sector, they are listening to us more and more.” Lagoon Living’s manager admits that although they are “horrible operations at a profitability level,” management can help. “We want a common regulatory framework within which we can work, and many more people will participate in tenders,” he says.