Spain's booming economy brings cold comfort for some

Highlights: 

• Spain's economy growing four times the euro zone average
• Growth driven by migration and tourism
• But lack of housing generates anger, risks future growth
• Support growing for far-right among youth

Sara Huertas still lives with her parents at age 30 because her supply teacher salary doesn't pay enough for her to rent a home in Madrid with her partner.

"We looked south of Madrid, because it's impossible in the capital, but still we got nothing," Huertas said at a recent housing protest. "They need to do the right thing: reduce house prices and increase wages."

Huertas is among Spaniards who feel they aren't reaping the benefits of Europe's fastest-growing economy. Instead she's struggling to put a roof over her head.

Last year most European economies stagnated, but Spain's grew by 3.2%, prompting the government to raise the 2025 growth forecast to 2.6%.

The primary factors were mass migration and tourists keeping Spain the world's second most-visited country. The strong growth meant half a million new jobs were added to a record 21.3 million people employed in 2024, 13.5% of them migrants.

"We are optimistic for the coming years," Israel Arroyo Martinez, Spain's junior economy minister, told Reuters, citing other benign "tailwinds" including stable energy prices and lower interest rates supporting investment.

But as Democratic presidential candidate Kamala Harris discovered in November's U.S. election, strong economic data don't guarantee votes. Many Americans said they picked Donald Trump because they felt squeezed by the cost of living.

In Spain, anger is building over a toxic mix of housing shortages, high consumer prices and sluggish wage growth.

House prices have increased by 44% while rents have almost doubled in 10 years, according to Idealista, a property website. Meanwhile. Salaries meanwhile increased by just 19% between 2012 and 2022, according to the National Institute of Statistics.

Spain must close a deficit of 600,000 homes, the Bank of Spain says, and build 225,000 new ones each year just to keep pace with new household creation.

Such shortages risk not only driving down an already-low birth rate but also curtailing workers' mobility and hence their career progression, a recent Caixabank Research study warned.

Migration and tourism also increase pressure on low housing stock and face risks from it.

The number of foreign visitors was a record 94 million in 2024 with more expected for 2025. Protests against short-lets which locals claim price them out of the market have generated negative headlines, though no perceptible drop in bookings yet.

Migrants meanwhile compete with locals for scarce housing.

That situation illustrates a paradox in the Spanish economy, said Francisco Quintana, ING's local head of investment strategy: "Low productivity or low intensity growth requires more people to produce more.

"(Without immigration), we do not grow, but if it does, it exacerbates the housing problem we already have."

THREADING THE NEEDLE
Spain's Economy Minister Carlos Cuerpo said on Thursday that lower income households were in reality seeing the fastest improvement in purchasing power in Europe, conceding: "There is still a long way to go - we are still working on it."

Of the 496,000 new jobs created in 2024, 85% were filled by foreigners or people with dual nationality, versus 59,000 taken by locals.

Foreigners filled a third of hospitality jobs. Between 2022 and 2023, hospitality wages increased 4.2% compared to an average 7.2%, the CCOO union group said in a report.

Raymond Torres, chief economist at Madrid-based think-tank Funcas, estimates that around 70% of jobs created since 2019 were filled by foreigners or dual nationality Spaniards, and immigration generated almost half of 2023/2024 economic growth.

Migrants help plug gaps left by an ageing population, he said, but can also slow short-term wage growth, as their ready labour deincentivises employers from offering more to attract Spanish workers.

That can fuel tensions. A 40DB survey published in October found 41% of Spaniards were "very worried" about immigration, a 16-point rise from a 2023 survey.

Support for Spain's far-right party Vox has risen nearly two percentage points to 14.2% since the July 2023 election, 40DB found. Among 18 to 24 year-olds still worst hit by unemployment, 27.4% said they would vote Vox.

"Vox is attracting disaffected first-time voters for reasons including the housing property ladder they can't get on," said William Chislett, a Royal Elcano Institute researcher.

Yet Prime Minister Pedro Sanchez is doubling down on immigration, pledging last year to hand residency to about 300,000 undocumented migrants a year.

"(Immigration is) necessary for our economy's prosperity and welfare state sustainability," Sanchez told parliament in October. "The key is in managing it well".

Building more homes will require more workers - probably from abroad. The construction sector needs 700,000 more workers, a gap which could in part be resolved by giving immigrants residency, said Pedro Fernandez Alen, the National Construction Confederation president.

Scarce housing imperils migration, junior economy minister Arroyo Martinez said: "The risk isn't that migrants don't find housing, it's that they stop coming."