Housing crisis in the Balearic Islands: how the dream of owning a home has changed

PalmAs the sun rises, the residents of Son Güells close their front doors to begin their workday. Son Güells is not a housing development, but a caravan settlement In Palma, which is beginning to take shape as a micro-neighborhood on wheels. The first quarter of the 21st century is ending, and living in a vehicle is just one example of the normalization ofhousing emergency that the Archipelago suffers. There are many more: living in shacks, abandoned buildings like the old Palma prison, apartments shared by several families, or rooms in houses where common areas have been eliminated and rented out.

Two decades ago, all this seemed unthinkable. Housing was a life project accessible to large segments of the population. Today it is one of the main factors of inequality in the Islands.

Carolina was just over twenty years old in 2000 when she and her partner bought a four-bedroom apartment off-plan in a coastal neighborhood of Palma. "It cost us almost 20 million pesetas. Converted, that was less than 120,000 euros. We had regular jobs. It seemed like a palace to us, and we could afford it comfortably between the two of us," she recalls. Garage, storage room, good finishes, and a balcony on two sides. A neighbor recently sold one identical to his for 470,000 euros.

This case serves to illustrate some telling data. In 2000, the average price per square meter in the Balearic Islands was around €1,300—a standard apartment cost just over €100,000—while the average gross annual salary was around €17,000. A quarter of a century later, the price per square meter exceeds €5,000, while salaries are around €27,000. Salaries have therefore increased by 65%, while housing prices have risen by 290%. Four times more. Employment is no longer the key to buying a house. The process has been similar in the rental market: the price per square meter has tripled, from €6 to €18.

During the first half of the 2000s, the Balearic Islands joined the expansionary cycle of the national real estate market. "Spain is doing well," Aznar proclaimed. Credit flowed freely, construction intensified, and housing became one of the driving forces of the economy. The message was clear: everyone could own a home.

The Boom Years

In 2007, at the height of the boom In the real estate market, the average price reached €2,700 per square meter. In just seven years, housing values had doubled. And although prices rose faster than wages, access to credit compensated for the gap. These were the times when banks granted 100% mortgages, with low interest rates and long repayment terms. Notary offices were teeming with buyers signing loans for 30, 35, and even 40 years. Buying was expensive, but viable for the so-called middle class.

"Before the 2008 crisis, apartments weren't cheap, but banks financed everything: housing, expenses, taxes. For a young couple with stable jobs, it was worth it," recalls Natalia Bueno, former president of the Association of Real Estate Agents (API). In that price surge, the Balearic Islands already stood out above the national average, but not exceptionally so. Because the problem was widespread, it wasn't yet perceived as structural.

The crisis that wasn't the same

The 2008 financial crisis and the suffocating rise of the Euribor rate marked a turning point for the Spanish real estate market. In many regions, prices plummeted. The sector entered a long adjustment phase characterized by foreclosures, stalled developments, and a glut of unsold housing. In the Balearic Islands, the impact was different. Prices fell, but more moderately. By 2013, the price per square meter was around €1,900. A significant drop, but far from the lows seen in other regions. "The price correction between 2008 and 2012 made the market very attractive to investors. Assets that were once worth a lot became worth very little in a short time. They ended up in the hands of banks that didn't know what to do with them and were channeled through Sareb. People who had bought in full..." boom People lost their homes and developers went bankrupt. In that context, foreign investment funds bought up large portfolios of real estate. In the Balearic Islands, the decline wasn't as severe because we never ceased to be an attractive destination. In fact, we were the first region to recover pre-crisis nominal prices. boom“Today we are clearly above those peaks,” explains economist and housing expert Eduard Robsy.

There wasn't a large surplus of empty housing in the Islands. Nor did demand disappear. Tourist appeal, external pressure, and territorial limitations acted as a barrier. The demand disappeared, and with it, “democratic” access to housing.

Recovery and change of model

From 2013 onwards, prices began to rise. Slowly at first. Then, steadily. By 2018, the price per square meter in the Balearic Islands was around €2,900. The crisis was behind us, but the market had changed the rules of the game. With no credit available to the average worker, buying property was reserved for those with their own capital: investors, funds, and foreign buyers, who absorbed the assets of banks and Sareb (the Spanish bad bank). Housing was becoming more of a financial asset than a commodity. In 2018, the progressive government of Palma City Council banned tourist rentals in multi-family buildings. It was a pioneering measure: the first city in Spain to implement it. The Balearic Government promoted social housing developments, which were insufficient given the scale of the problem. The pandemic as an accelerator

The pandemic paralyzed almost all activity, but it accelerated the Balearic real estate market. The lockdown increased the value, more than ever, of outdoor spaces, large homes, and country living. "After COVID, everything started to skyrocket. By 2022, prices had already surpassed the pre-2008 crisis peak. Many people rethought their lifestyles: they were looking for houses and open spaces. There was one boom "It was, so to speak, the 'discovery' of Menorca, which has become almost as tense as Mallorca," Bueno summarizes.

"The weight of foreign demand reached up to 40% of transactions," the highest percentage in the entire country, while the average price climbed to 3,600 euros per square meter. Balearic housing was definitively integrated into a global market, whose rules no longer reflected local wage realities.

The first quarter of the century ended with the Balearic Islands exceeding, for the first time, 5,000 euros per square meter on average for resale housing. This is the highest price in all of Spain. "We've gone from an unrealistic situation, in which banks facilitated credit and it was said that everyone could be a homeowner, to the opposite: today a family with two average salaries cannot aspire to buy a home. And paying rent, you can't save for a down payment when there's practically nothing below 400,000 euros. We can do without."

Renting is not the solution

Renting isn't the solution either."From two bedrooms upwards, we're talking about more than 1,500 euros a month. For a single person, it's simply not feasible," Bueno asserts. The weight of tourism is key to understanding this trend. A significant portion of the housing stock is dedicated to second homes or holiday rentals, which are much more profitable for owners. The result is a paradox: the Balearic Islands create jobs, but don't offer housing to those who make them possible. Healthcare, education, retail, and hospitality professionals are being forced out, as are young people and workers with middle or low incomes. Renting rooms has gone from being a temporary solution typical of a transitional phase to becoming a permanent situation. In Palma and Ibiza, prices reach or exceed 700 euros per month, what an entire apartment cost not so long ago. Privacy diminishes, contracts are precarious, and moving is constant.

Meanwhile, caravaners are constantly on edge, worried about municipal ordinances and the lack of regulation, while informal settlements and substandard housing proliferate. "The problem is structural and won't fix itself. There's no classic bubble today: prices are still skyrocketing and have never risen so quickly with a credit crunch," Robsy insists. Investment is flowing into luxury, not enough affordable housing is being built, inspections of illegal tourist rentals are insufficient, and no one is seriously addressing the challenges of population growth projected for the next 25 years. At the same time, people live wherever they can, but not where—or how—they should be living.