Developing a DRIVE framework, how the housing market in Madrid will evolve

by 2033.

Data provided by INE (Instituto Nacional de Estadística) is categorical: Spain is one

of the most ageing countries in an ageing planet. The percentage of people over 65
will rise up to 25,2% by 2033 and could reach 34% in 2066. Nowadays it is around
18%. The amount of deaths will overcome the volume of births in the next 15 years,
and only migration will guarantee population growth in Spain. There will be 5.8
million single-person households which would represent 28.9% of the total. To end
with the picture of this paradigmatic change, some more data: the number of people
living in each household is decreasing, with an average expected of 2.38 people by
2033. Right now in Spain is 2.49 and in Madrid 2.50.

This demographic change will have an impact in an already volatile market: real
estate. In Madrid, the prices are increasing more than in other European capital
cities due to a myriad of factors, such as the recovery from the lowest point of the
2008 crisis, that has created more demand, the effect of tourist rentals through
companies like Airbnb and the arrival of foreign investment funds in search of high
profitability.

Nowadays there is an exodus of population from the center to the periphery looking
for lower prices. This also accelerates the process of gentrification in certain areas,
and there is also a recovery of activity in the construction of new real estate projects.

But this reboost of the building industry will not be a trend that will last forever. The
certain future is that due to aging, demand of new housing will decrease. According
to Juan Antonio Modenes, professor at the University of Barcelona, “aging of the
population will reduce the demand for housing to the levels recorded between 1983
and 1988”. He also estimates that the net creation of homes in the Community of
Madrid between 2023-2028 will be 28.000, a number much lower than the past
years. Other academics like Guzmán Antonio Muñoz-Fernández refer to it too:
“Despite the fact that there may be an upturn in the market, and optimistic analysts
are hopeful of the recovering of significant construction volumes due to an
improvement of the economic cycle, this sector, and all the sectors derived from
construction, that are so important in the Spanish economy and abundant in the use
of labour, will continue to stagnate”.

In this regard, a pain point for the industry will be how aging will impact the rules of
real estate markets. As “baby boomers” get older there will be an increasing demand
for elderly houses, shared homes, and adapted places with health care
infrastructure. At the moment, the amount of geriatric hospitals in Madrid i​s a bit
higher than the rest of Spain, in the capital is 4.4 beds for every 100 people over 65
and in Spain in 4.3. But both ratios are below the one recommended by the World
Health Organization (WHO), which is 5. These elderly people will have needs related
to their health, many of them will be dependent and will need professional and
special care. They will also face social difficulties, as many of them might be alone
and alienated from society. As globalization expands and families tend to have less
or no children at all, a great number of them will not enjoy the company, nor the care
and attention of children or grandchildren of their own.

“The projected investment in residences in Spain was 2,000 million euros from 2015
to 2017, but there is the possibility that this amount will double in five or six years
with the entry of international investors”, explains Enrique Barrasa, managing partner
of the financial advisory firm Kiplai. There is a feeling of change in the air and a clear
dormant demand.

The industry cannot continue doing business as usual, they will need to adapt to this
new environment and act out of their comfort zone. It is interesting to look at how
other cities and countries are dealing with these changes. One option are reverse
mortgage but the programs developed in the Netherlands regarding social housing
are a much more inspiring example. The Humanitas retirement home in Deventer
asks the students to spend at least 30 hours helping aging residents per month in
exchange for a small rent free apartment. This innovative project increases the
relationships between various generations. In Beekmos, Houten, an innovative
program combined elderly woman and young women often who had children and
social issues. In these two examples there is government support and
encouragement to have multi generational housing.

Real estate market in Madrid will be affected and disrupted by the challenges of an
ageing society. Instead of a problem it should be considered as an opportunity to
transform the market. Moreover, in a city where inequality is rising, and demand is
being transformed due to demographics it is a great moment to push for a
transformational change following examples like the ones developed in the
Netherlands. Creativity and courage to explore different business models regarding
finance, property and rental schemes will be essential. In short, there is an
opportunity to transform this market from being completely profit oriented to become
a market that takes social benefits into account.

Written by: David Flores Chinchetru

Final Essay: Strategy
Prof. Mark Esposito, Ph. D.
IE HSCT- MCMC PT-19
November 2019
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