The relatively high demand for purchasing properties and the relatively low demand for renting them produced its own set of perverse effects as landlords allowed their holdings to go untenanted rather than let them out for little money. So long as the on-paper price was climbing, landlords regarded their vacant properties as assets producing returns. Rents declined or stagnated, but sales prices leapt ever higher — so while the total stock of Spanish housing was growing at an unprecedented rate, the active inventory was restricted by owners’ sitting on their hands waiting for soaring prices to soar even higher. “You could rent an apartment for five years for less than half of the closing costs to buy it,” a Madrid-based banker says. “Plus, Spain is one of the best places in the world to be a renter: Landlords are forced to renew your lease for up to five years. But nobody wanted to rent. It was insane.” Renting, he says, was “almost socially taboo.” As a result, “the distortion between salary and price point was more pronounced than anything I’d seen. Florida was nothing by comparison.”
In the United States, the rule of thumb holds that a prudent borrower (and a prudent lender) will agree to a mortgage no more than approximately 2.5 times the homebuyer’s income. In some Spanish cities, the mortgage-to-income ratio was running 8:1. And a lot of those mortgages were zero- or negative-equity from Day One, with loans exceeding even the inflated nominal values of the properties. Those who argue that European-style banking regulation would have prevented the U.S. bubble and crash cannot account for Spain.