The Florida effect

Europe is a crowded continent. Quality, undeveloped land is scarce, partially due to “green belt” policies that prevent cities like London from swallowing the surrounding countryside. This has historically made residential property expensive, and meant that only the very rich could afford a second home.

But over the last decade this has begun to change, as citizens of temperate European countries such as the UK and Germany have begun buying up property in coastal resorts. One sign of the growing importance of this market: Professor Michael Ball of the department of real estate at the University of Reading dedicated an entire chapter in his RICS European Housing Review 2005 to “the second home boom.”

One key factor in the market's growth is the fact that the EU has given Europeans the right to live in another country, as well as providing funds for infrastructure development in areas such as rural Spain. The property boom has increased the amount of equity available to Europeans that already own a home, while the rise of budget airlines has made international travel cheaper – the report notes that areas not served by those airlines, such as Turkey and the Greek islands, have a relatively small second home market.

Certain regions in northern Europe have also benefited: County Kerry, in the west of Ireland, saw a 45 percent rise in housing output between 2002 and 2003, while a growing community of Germans have bought second homes in southern Sweden. However, it is the Spanish coast that has really boomed. This is at least partly due to demographics: as Europe has become wealthier, its population has become older, creating a demand for retirement homes in the sun – what has become known as “the Florida effect.”

Between 1996 and 2003 the coastal areas outside the main cities of Barcelona, Malaga and Valencia consistently accounted for more than half of all new builds in Spain. In 2003, that region saw a total of 380,000 new houses built – more than the whole of Germany and the Benelux countries combined. A growing number of those developments are of large, enclosed estates with resort-style facilities.

However, the report also notes that by early 2004 there were signs that the market was struggling, with projects taking upwards of two years to sell. Ball notes the cautionary tale of the Algarve (Southern Portugal) holiday home market, which boomed on the back of British prosperity in the 1980s – only to crash when the UK entered a recession in 1992.

REGIONAL NEWS

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Carlyle opens Beijing office
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