23 Oct Six years on: Spain starts building again
After six tough years, Spain’s ailing building sector is finally coming back to life, with public sector projects fuelling a lot of the new growth.
When Spain’s property bubble burst in 2008, the country was plunged into an economic crisis that threw millions of people out of work.
Now after six hard years, and even though hundreds of thousands of properties stand empty, building has restarted in the country.
The decade before the crash saw an all-out building frenzy in the eurozone’s fourth-largest economy. Around 700,000 houses were built each year during the 2000s until the bubble burst, more than in Britain, France and Germany combined.
At the same time municipal and local governments, flush with cash in part from the sale of building licences, undertook massive infrastructure projects, such as Huesca airport in the foothills of the Pyrenees in northeastern Spain, which opened in 2007 and is now mostly empty.
Nearly 1.9 million people worked in the building sector before the economic crisis. Now the sector employs fewer than 700,000.
But in recent months building firms have started hiring again. The sector created nearly 10,000 jobs in November, according to employment ministry figures published last week.
“It is mostly linked to a rise in public works,” said a spokesman for the National Confederation of Construction, which groups together the majority of Spain’s builders.
The tendency should continue next year since Prime Minister Mariano Rajoy’s budget for 2015 — when he faces local and legislative elections — calls for spending on infrastructure projects to increase by around six percent.
“There is a lot of optimism in the construction sector, in part because of the announcements that have already been made by the public works minister,” said Javier Vaca, director of business development at Spanish builder FCC.
The slight uptick in the sector is not limited to public works, with the building of private homes up slightly as well.
“The improvement in investment in the construction sector that has been noticed since the start of the year seems to have continued during recent months,” the Bank of Spain wrote in its latest bulletin at the end of November.
Among the factors giving the sector a boost are low interest rates, easier household credit, a rise in the number of building permits issued and a return to modest economic growth, said Miguel Cardoso, chief economist at Spain’s second-largest bank BBVA.
“There are a series of factors that make us think that we have reached an inflection point,” he said.
The number of building permits issued in Spain during the first nine months of 2014 rose by 5.7 percent over the same period last year, according to BBVA.
Home building is up despite a huge stock of unsold homes because many of these empty dwellings are not in urban areas like Madrid and Barcelona where the economy is improving at a faster clip and demand is rising, Cardoso said.
Most of the empty new houses are found along Spain’s extensive coastline or in the interior of the country that were intended as holiday homes or secondary residences, he added.
These encouraging signs will not translate into a rise in the construction sector’s turnover this year, however.
Activity in the sector is expected to fall by 2.4 percent in 2014 before finally rising next year, according to a forecast from the Catalan Institute of Construction Technology (Itec).
It predicts activity will rise 1.8 percent next year before growing by 5.0 percent in 2017.
That is good news for a sector that suffered such a huge fall.
“We didn’t plunge into a cave, we fell down to the catacombs,” said Josep Ramon Fontana, a Spanish member of European construction business research group Euroconstruct. The construction sector, which accounted for about 20 percent of Spain’s economic output in 2007, now represents just 5.0 percent of it, according to Itec.
Foreign investors have started to return to the sector. Mexican telecoms magnate Carlos Slim, the world’s second-richest man, announced last month that he will invest €650 million ($800 million) to become the main shareholder in Spanish builder FCC.
“This time the sector is not the cause of economic growth, it is growing because of economic growth,” Cardoso said.