The Spanish housing bubble
Most commentators focus on house prices, usually in real terms, as the gauge the housing bubble and its own developments (e.g. Münchau 2012). Data claim that house prices have indeed adjusted, however, not enough. Figure 1 shows the home price index for Spain (measured as in accordance with rents) at roughly the same level as in 2003 but still much above its pre-2000 levels. We favour the price-to-rent index to the true price because it shouldn’t be suffering from immigration; any upsurge in demand for housing from that source should manifest itself in upwards pressure on both rents and prices. On the other hand, immigration should put more pressure on rents than on house prices since most immigrants will tend to be short of capital and therefore apt to be renting, instead of buying.