According to leading property portal, Idealista, Spain’s real estate market is experiencing a new boom in the rental sector. The average rent for new leases has risen 20.9% over the last year, with cities like Madrid and Barcelona achieving some of the highest rents in more than a decade.

This is due to a rise in demand, but also to a drop in supply caused by many homeowners who had been renting out their properties during the economic slump putting them back on the sales market as prices start to pick up again. Also, short-term rentals to tourists and holidaymakers have become a more profitable proposition than long-term leases, as tourist numbers in Spain continue to rise exponentially every year.

According to real estate groups, there are so many empty homes across Spain that are not listed for rental that supply levels could become critical in the not-too-distant future.  Many regular renters are finding it increasingly difficult to find affordable rentals in regions of Spain that are popular with tourists, with many complaining they are being priced out of the market as landlords chase more profit.

Long-Term Renters are being squeezed-out of the Market by Tourists

According to Idealista’s figures, there are six cities in Spain where rent is higher than it was a decade ago: Barcelona, Las Palmas, Palma, Madrid, San Sebastián and Girona. The National Statistics Institute (INE) offers more dramatic numbers, recording that rent levels in 48 provinces are higher than in May 2007. In the 10 most populated provinces, accumulated rent inflation since 2007 is between 5% and 15%.

A study by the University of Barcelona predicts that rents will continue to rise this year at an average rate of 8% in Barcelona and 13% to 14% in Madrid. The study’s author, economics professor Gonzalo Bernardos, explains that during the crisis, the slump in property prices made many owners decide to rent out their properties instead. Between 2007 and 2013, supply grew 65%. But that trend is being reversed now.

“Out of every 10 rental leases that expired last year, six of those properties are now being put up for sale,” he said.

“At play here is the psychological effect on many owners who did not want to sell their properties for less than what they paid for them,” adds José García-Montalvo, who teaches applied economics at Pompeu Fabra University. “In Barcelona there are neighborhoods where prices are back to pre-crisis levels, and so owners would rather sell than keep renting them out. And that drives supply down.”

Rents are set to continue to Rise for the Rest of the Year

And while supply is dropping, demand keeps rising. “There’s been a psychological change in many people, who no longer feel that renting, is tantamount to throwing away your money,” he adds, citing a long-held belief in Spanish society, where home ownership rates remain very high.

Some people are renting out of need, as banks continue to be strict about mortgage eligibility following the real estate debacle that left the sector with scores of repossessed properties on their books. Foreign buyer interest has also increased in Spain’s tourist rental market, with many seeking to finance family holidays in Europe’s most popular tourist destination with additional rental income.