A new report suggests that house prices in Barcelona are rising at more than 20 percent per annum, which is far faster than the rest of Spain. I asked a couple of local experts if they think Barcelona is anywhere near bubble territory, or headed that way.

The latest housing market report from Tinsa – Spain’s leading appraisal company – reveals that house prices in Barcelona rose 21.7% over twelve months to the end of June. That’s almost twice as fast as the next hottest market – Alicante – on 12.9%, and Madrid (10.8%).

Housing costs – purchase and rent – have been rising in Barcelona since the market started to recover around 2014, and the pace of growth has been accelerating as time goes by. The cost of housing in relation to local incomes is starting to flash red, and there is much wailing and beating of chests by local politicians  about the unaffordability of housing in Barcelona.

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Barcelona Property Supply & Demand

Why are housing costs rising so fast in Barcelona? Various reasons. On the supply side Barcelona is limited by geography, long lead times in the building industry, and dysfunctional town planning. On the demand side the growing need for accommodation in the city is being fuelled by ever rising tourist numbers, economic recovery, greater mortgage lending, and increasing interest from foreign buyers and investors. Rising costs driven by supply and demand fundamentals suggests the market is not speculative, at least not yet.

Assuming no big external shocks, and assuming the Catalan nationalist drive to force independence from Spain with a referendum on the 1st October does not get out of hand, then I assume housing costs will continue rising in Barcelona for the foreseeable future, though maybe not as fast as the recent past. Rising housing costs benefit owners and vendors, but not those who rent or can’t afford to buy. This will continue to fuel local resentment in some quarters, though that is far from unique to Barcelona.

But at what point do house prices enter bubble territory, which means they become fundamentally unsustainable and heading for a fall? Are we there yet, or heading that way? I asked a couple of local market experts for their views.

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