Spain’s Growth Story Extends to Housing, but Structural Strains Remain
Spain has secured a position as one of Europe’s more dynamic economies, with growth figures surpassing those of its neighbours and a property sector that continues to attract investors and households alike. The picture is encouraging, yet the underlying conditions point to challenges in productivity and in providing enough homes to meet demand.
The economy expanded strongly through the first half of 2025, supported by a larger workforce, vigorous services exports, and tourism that has rebounded to near record levels. Public investment, partly financed through European Union programmes, has also added momentum. The result has been growth rates far above the euro-area average, at a time when many member states are struggling to maintain output.
Immigration has been central to this performance. Spain has admitted large numbers of newcomers over the past three years, many of them of working age, which has helped offset demographic decline and filled labour market gaps. Economists note that this influx has contributed directly to income growth, while also sustaining the consumption and services base of the economy. Recent reforms have eased the process of regularising undocumented workers, broadening the pool of legal employees, and nearly half of all new jobs since 2022 have gone to foreign nationals.
The property sector has mirrored the country’s economic upswing. Home sales rose strongly in 2024, with both new and existing units seeing significant increases. The trend has continued into 2025: in the first quarter alone, nearly 185,000 transactions were completed, a sharp increase on the previous year. Analysts expect that by year’s end, sales could reach the highest level since before the financial crisis. Prices have moved upwards as well, averaging close to €2,000 per square metre nationwide, with considerably higher figures in major cities and coastal regions.
Despite the surge in activity, weaknesses are evident. Supply has not kept up with demand. While construction starts and completions have risen, they remain far short of what would be required to close the estimated housing shortfall, which runs into the hundreds of thousands of units. Rents have also climbed quickly, and in many urban areas families are now devoting an ever larger share of income to housing costs. A tightening of rules on tourist rentals and new rent caps have been introduced in an attempt to ease pressures, but their long-term effectiveness remains uncertain.
Financing conditions are somewhat more favourable than during the peak of Europe’s rate-hiking cycle. Mortgage costs have eased as banks offer more competitive fixed and variable products, helping households access credit. Yet an increase in foreclosures in recent months points to vulnerabilities among more stretched borrowers, especially in regions where prices have risen fastest.
The government has announced plans to expand social housing, tripling budget allocations over the coming years in an effort to raise Spain’s public housing stock closer to the European average. Authorities have also taken steps to increase data transparency and rein in speculative practices. But industry players argue that permitting delays, land shortages and a lack of skilled construction labour continue to constrain delivery.
Beyond housing, the broader economy faces the question of productivity. Output per worker remains well below the euro-area norm, limiting the extent to which rapid growth can translate into sustainable gains in living standards. International institutions have urged Spain to modernise regulations, support innovation and help companies scale up.
Spain has positioned itself as one of Europe’s few bright spots, showing how demographic renewal and service-led expansion can drive results. The challenge now is to ensure that this momentum translates into more efficient output and adequate housing for its growing population. Without that, the risk is that today’s success will prove cyclical rather than transformative.
