Foreign buyers bought one in four Balearic homes — why Spain’s housing squeeze is worsening

A market shift: foreign demand and shrinking access for young Spaniards

Foreign buyers snapped up one in four homes sold in the Balearic Islands last year, a headline figure that grabs attention because it ties directly to wider problems across the Spanish property market. In our analysis, the Bank of Spain’s 2025 annual report shows that international demand, rising prices and a tiny social housing stock are combining to reduce access to housing for young people and households on modest incomes.

This is about more than second homes. The report exposes regional hotspots, affordability thresholds and supply-side failures that matter to anyone buying, investing or renting property in Spain.

How big is foreign buying — and where is it concentrated?

The Balearics are not an outlier in isolation. They are part of a pattern of strong foreign demand concentrated in coastal and tourist-focused provinces.

• Balearic Islands: 25% of homes sold in 2025 went to a non-resident foreign buyer.
• Alicante: 33.3% of 2025 sales to non-resident foreigners — the highest share reported.
• Málaga: 27.9%, second only to Alicante.

The Bank of Spain also measures the footprint of holiday homes and properties owned by non-residents as a share of total housing stock. The Balearics account for 10.9% of stock in this category, the same as Girona and trailing only Málaga (14.1%) and Alicante (14.5%).

Why this matters:

• High concentrations of non-resident ownership reduce the pool of homes available for year-round local occupancy.
• Markets with many holiday properties tend to show wider seasonal price swings and tighter supply for permanent residents.
• For investors, these provinces can offer strong capital appreciation and rental seasonality, but they carry policy and demand volatility risks.

From an investment perspective, this is not inherently bad: coastal markets can deliver strong returns. From a social and policy standpoint, however, the concentration of foreign buyers can make urban housing less accessible to local households and younger generations.

Young people losing ground: the collapse in home ownership for 18–35s

One of the starkest findings in the Bank of Spain report is the decline in home ownership among younger adults. Ownership among 18–35 year olds fell from 41% in 2007 to 22% in 2025. That is a structural shift with long-term consequences for wealth accumulation and household formation.

Affordability metrics in large cities tell the story behind the numbers:

• Renters in Málaga, Madrid and Barcelona would need 10 years’ worth of net rent to buy a home.
• For young people and those born outside Spain, that figure is 7.5 years.
• The average for all households stands at 4 years.

Practical implications for young buyers and expatriates:

• Saving a deposit is harder when rent consumes a third of net income in high-demand areas.
• Lenders may view younger buyers as higher risk because of shorter employment histories and higher loan-to-income ratios.
• Longer time-to-purchase creates delayed household formation and increases lifetime housing costs.

If you are under 35 and trying to buy in Madrid, Málaga or Barcelona, expect a long savings horizon unless you move to outer suburbs, smaller cities or lower-price regions.

Rental market: who profits and who pays

The rental market in Spain has absorbed much of the unmet demand for housing. The Bank of Spain highlights several worrying trends:

• Around 90% of landlords are private individuals, rather than institutions.
• Rents and house prices are rising faster than household income.
• In the most pressured provinces rental payments take a large bite out of net income:
  • Málaga: 34.6% of net household income
  • Cádiz: 31.2%
  • Balearics: 30.7%
  • Madrid: 30.4%

Recent price dynamics provide further context:

• Real house prices (inflation-adjusted) between 2014 and 2025 grew at an average annual rate of 5.2% in Málaga, 4.8% in Madrid and 4.7% in the Balearics.
• In major urban areas the rise was uneven: Valencia 7.9%, Málaga 7.4%, Madrid 6.1%, Barcelona 4.6%.
• Prices for new rental agreements rose 4.9%, while newly listed rental properties jumped 16.6% in 2024.

What this means for renters and investors:

• Private landlords dominate, which can keep rental policy fragmented and reactive rather than strategic.
• For buy-to-let investors, rising new-tenancy prices and strong tourism demand create short-term yield opportunities, though yields must be compared with local price growth and vacancy seasonality.
• For tenants, higher rents reduce saving capacity and channel more income toward housing costs, intensifying the barrier to future ownership.

Supply-side constraints: why new housing isn't keeping up

The Bank of Spain is unequivocal that limitations on supply are a major cause of affordability problems. The report calls out several supply-side obstacles:

• Land and urban planning bottlenecks which slow project approvals and reduce the quantity of building plots entering the market.
• Poor coordination between administrations, affecting infrastructure connections such as electricity for new developments.
• Productivity, profitability and scale issues in the construction sector since the 2008 crash; firms are generally smaller and less efficient.
• Labour shortages in construction — employment in the sector now accounts for about 7% of social security contributors, which is 4 percentage points lower than in 1999.

These constraints mean that even when demand cools, the housing stock adjusts slowly.

Policy levers the Bank of Spain highlights include:

• Short-term demand containment measures, such as restrictions on the non-residential use of housing, targeted carefully because poorly designed measures may fail in areas with rigid supply.
• Increasing supply through improved urban planning and land management.

From a developer and investor perspective, the report suggests opportunities exist if planning and grid-connection bottlenecks can be fixed. That requires political will and administrative capacity at regional and municipal levels.

Social housing: Spain at the lower end of European peers

Compared with neighbouring countries, Spain’s social housing stock is strikingly small. The Bank of Spain reports that only one in every 65 homes in Spain is social housing, equivalent to 1.5% of the housing stock. By contrast:

• Netherlands: 34%
• Austria: 23.6%
• Denmark: 21.5%
• United Kingdom: 16.4%

Given that social housing is a direct policy tool to relieve affordability pressure, Spain’s low share limits public-sector capacity to stabilise markets. That constraint matters most in high-demand coastal and urban provinces where private renting and foreign buying dominate supply dynamics.

What this means for buyers and investors — practical advice

Our assessment is that Spain’s market offers graded opportunities and clear risks.