Affordable housing can infrastructure investing address Spains crisis| abrdn

Since April 2024, Spain has faced mass anti-tourism protests across its major cities and islands. Anti-tourism activists say that visitors are driving up housing costs, meaning residents can’t afford to live in city centres. This is feeding into a broader housing crisis across Spain. The country’s central bank reports that nearly half of families who rent at market prices are at risk of poverty or social exclusion.

Affordable housing crisis

Only 2% of Spain’s housing stock is classified as affordable, far below the European Union average of 9.3%. The demand for affordable housing far exceeds supply. Population growth, migration, the influx of students and young professionals, and the rise of short-term rental properties through platforms like Airbnb are driving the crisis. In major cities, rising housing costs have made it nearly impossible for low- and middle-income families to afford a home. The rental market is under immense strain, with high rents pushing residents to the outskirts or other towns.

Building homes on public and private land

Infrastructure investment can help the crisis. Concession agreements and surface-rights models are innovative solutions for addressing the affordable housing deficit. These mechanisms offer a sustainable way to tackle a pressing social issue while creating attractive opportunities for investors seeking long-term returns.

So how does it work?

Concession agreements
Public entities (such as local governments) grant private developers the right to use and manage public land for a set period, usually between 30 and 75 years. In exchange, developers build and manage homes, often with price controls. When the term expires, ownership of the land, and sometimes the buildings, reverts to the original owner, ensuring long-term public benefit.
Surface-rights agreements
This arrangement is similar to concession agreements but isn’t limited to public land. Developers can acquire the right to build on private land for a fixed period, often between 50 and 99 years. At the end of the agreement, the structures revert to the landowner.

These frameworks provide a win-win scenario for public entities and private investors. They make land accessible for affordable housing projects, while retaining ownership over the long term. Both models significantly reduce upfront costs, by removing the need for land acquisition. This makes it feasible to develop affordable housing in high-demand markets with prohibitive land costs.

Successful Spanish developments

Spain offers a range of active opportunities for investors looking to leverage concession agreements and surface-rights models. Madrid’s plan vive, for example, was launched by the regional government. This ambitious programme aims to develop 25,000 affordable rental homes over the next eight years. Public land is leased to private developers through concession agreements, with the stipulation that rents remain capped at 30% below market rates. Recent bidding rounds have allocated projects in areas like Getafe and Valdemoro, where demand for affordable housing is high.

Similarly, Barcelona’s municipal government is allocating land to housing cooperatives under surface-rights agreements for up to 99 years. One example is the La Borda cooperative, which successfully developed an eco-friendly affordable housing project in the Sants neighbourhood. Several similar opportunities are in the pipeline, particularly in emerging districts like Poblenou.

The benefits of public-private partnership infrastructure models

Cost-effective entry
By removing the need for land acquisition, these models lower barriers to entry by making projects more financially feasible.
Long-term stability
With agreements spanning decades, concession agreements and surface-rights models provide predictable revenue streams and reduce market volatility risks.
Social impact
Beyond financial returns, affordable housing projects contribute to urban stability and inclusivity by addressing critical social issues like homelessness and housing inequality.
Sustainability focus
Many projects incorporate energy-efficient designs and community amenities, enhancing their long-term value and environmental impact.
Future-proof flexibility
Developers can adapt these projects to changing community needs, such as upgrading to renewable energy systems or integrating mixed-use spaces over time.

Challenges and mitigation strategies

While the benefits are clear, investing in concession agreements and surface-rights projects comes with specific challenges.

Regulatory complexities
Housing policies vary widely across Spain’s regions, and navigating these differences requires local expertise. Collaborating with experienced legal advisors or local developers can streamline processes.
Tight margins
Price caps on affordable housing can limit profitability. Investors can overcome this by integrating mixed-use components, such as retail spaces or co-working areas, to generate additional revenue.
Community resistance
Affordable housing projects sometimes face pushback from local communities. Early engagement and transparent communication can help build support by emphasising the social and economic benefits of the developments.
End-of-term risks
The reversion of property at the end of the concession agreement or surface-rights period requires careful financial planning to maximise returns during the operational phase.

Final thoughts…

Spain’s affordable housing crisis has created an urgent need for innovative solutions. Concession agreements and surface-rights models offer a scalable and practical path forward, allowing investors to demonstrate social impact by addressing the housing shortage while generating long-term financial returns. There are challenges to investing in this sector, but with collaboration between the government and private sector, there is an opportunity to drive the development of affordable housing and ease the social pressures in Spain.