While the Brexit results have shocked the world, Spanish presidential elections have gone unnoticed.
The appearance of two new players has disrupted the traditional two party system. And caused a deadlock in the December 2015 presidential elections.
Which led to a second round of voting last Sunday.
This time, polls were predicting a major change in the Spanish political landscape. But polls failed.
Once again, no candidate won the majority needed to rule. Yet this time, the new parties lost votes against the current ruling party.
The chaos caused by the Brexit vote may have had a hand in it, as people would rather support stability than an unknown.
So once again there is deadlock. And the four major parties will have to negotiate to reach an agreement. Or risk a third round of voting.
It seems like UK is not the only society that’s divided.
The candidate elected will need to attend to the many issues plaguing the country.
Unemployment is still at 21%, while the debt to GDP ratio keeps increasing.
And corruption is still running rife with new cases coming to light every day.
One of the many problems is the number of people without a home.
And I’m not referring to people living in the streets — although that is quite a large problem also.
I’m talking about a different type of ‘homeless’, a more invisible one. Young people who need to live with their parents as they cannot afford to move out.
They are the ones who are still feeling the effects of the global economic crisis that started in 2008.
You see, Spain suffered a property bubble from 1997 to 2007.
Times were good during that time.
Much like Australia today, everyone had large amounts of disposable income. Crowds flocked to shopping malls and trendy restaurants.
Credit was flowing, and getting a mortgage was easy. Nobody cared that the average mortgage was 10 times the salary. Or that properties kept increasing at an unsustainable pace — at about 17% a year.
The construction sector was booming. In fact, the construction rate was ridiculous. At the height of the property bubble, Spain was building more houses than Germany, Italy, France and UK put together.
And in 2008 everything came crashing down.
Since then, property prices have fallen 45%.
That’s right, 45%. You heard right.
And even with such an extreme discount, most young people cannot afford to either rent or buy a home of their own.
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According to a report published by the Spanish Youth Counsel, three out of four people under 30 are still living with their parents. And 85% of those who are not share the rental of property with others.
So how can it be so hard to buy property in a country where there is one property per two inhabitants?
The main culprits are unemployment, job insecurity and low salaries.
Unemployment for people under 25 is now at 51.4%; and it’s at 30% for people between 25–29 years of age.
Half of those unemployed have spent more than a year looking for a job.
And more than half of those who do have a job are overqualified.
High unemployment has created a bad jobs market for young people. And it is afflicted with short term or part time contracts and low salaries.
But one of the most shocking bits of data from the study is that a person under 30 would have to dedicate 60% of their salary to buy or rent a property on their own, and 43% if they are between 30–35 years old.
And this is at the current negative interest rate!
Even though property prices have stayed stable in the last few years, the younger population has no access to property.
This is because salaries have decreased. In fact, according to the study, 30% of people under 30 are living below the poverty line.
To make matters worse, credit is hard to get. And the government has eliminated property tax incentives.
So it is not surprising that young Spaniards are not buying property. In fact, the number of Spaniard moving to foreign countries keeps increasing.
Demand for property is not rising, as the population cannot afford them. And there are still too many properties available from the time of the property bubble.
Maybe this is why foreigners buying property in Spain is at a historic high.
At the beginning of 2016, even with lower demand, properties saw a small increase in price. This was due to a small EU recovery and an increased demand from the British.
But the Brexit may send this small recovery down the drain. As it may affect British demand for housing and Spain’s main income stream — tourism.
A quarter of Spain’s visitors are British nationals. All drawn in by a strong pound.
And that strong pound has made Spanish property more attractive. British are by far the largest property buyers in Spain. There are 400,000 British currently living in Spain.
With the Brexit, there is great uncertainty of what will happen to so many English holding properties in Spain. And to the future of property sales.
Brexit couldn’t have come at a worse time for Spain. The country is still recovering from the effects of the global financial crisis. And their inability to choose a president is eroding confidence.
A decrease in tourism will increase unemployment. And the British selling their properties could increase the stock of properties available for sale, creating a further fall in property prices.
Yet this fall may make Spain an even more affordable paradise for other foreign investors.
For The Daily Reckoning
PS: Selva recently joined the Port Phillip Publishing team as our macroeconomic analyst. She works closely with The Daily Reckoning editor Vern Gowdie on his advisory service, The Gowdie Letter.