The Living Sector in Madrid
Trends, Challenges and Opportunities
Madrid's housing market is undergoing a major transformation, driven by supply shortages, shifting demographics, and a surge in institutional investment in the rental sector. While the city has long struggled with a housing deficit, the growing popularity of Living Sector is reshaping the landscape, offering much-needed solutions to rising demand.
Supply Constraints and the Race for Rental Homes
Spain's housing market saw a massive boom before the 2008 financial crisis, with a surge in completions driven by speculative development. However, the crash led to a sharp drop in housing delivery, and construction has struggled to recover since. Meanwhile, the population has continued to grow, creating a severe imbalance where demand far exceeds supply. Meaning Spain is delivering less than half the housing required to match population growth—resulting in the largest shortfall among the major markets compared to the USA, UK, and Australia.
According to data from Idealista, an average of 40 families competes for each available unit, driving rental prices up by 16% since 2014. Additionally, the latest data from our partner, Atlas Real Estate Analytics shows nearly 49% of Spain’s Build-to-Rent (BTR) projects are concentrated in Madrid, making competition for rental properties fierce. In 2024, Spain’s BTR market reached a new milestone, surpassing 20,000 operational BTR homes—a 15% increase since 2022, with Madrid leading the way.
Affordability Challenges and Market Pressures
Affordability remains one of Madrid’s biggest housing challenges. Meanwhile, rising land prices, escalating construction costs, and higher interest rates are making new developments financially difficult.
New government regulations have introduced changes aimed at protecting tenants, but they have also brought new considerations for developers and investors as they adapt to the evolving housing landscape. However, some measures remain proposed and have not yet been implemented:
Tax Incentives for Landlords – These measures, introduced under the 2023 Housing Law, include a tax exemption for landlords who rent their properties at or below the Reference Price Index, aiming to encourage affordable rentals.
State Housing Acquisitions – A public housing company has been established to acquire unsold properties and land, converting them into rental homes to increase the affordable housing stock
New Taxes on Foreign Buyers – The government has proposed imposing up to a 100% tax on property purchases by non-EU, non-resident buyers to curb speculation and make housing more accessible to residents.
Rent Controls in Stressed Areas – In 2023, Spain introduced caps on rent increases in designated high-demand areas. The effectiveness of these controls has been mixed, with some regions reporting stabilization in prices, while others have seen limited impact
Emerging Trends: Co-Living, Flex-Living, and Institutional Investment
As traditional rental housing becomes increasingly expensive, alternative housing models like co-living and flex-living are rapidly gaining popularity. These modern solutions cater to young professionals, digital nomads and expatriates, offering fully serviced apartments with flexible leases. The demand is clear—co-living properties in urban areas boast near-full occupancy rates, signalling their appeal in a city where affordability is a pressing issue.
At the same time, investor interest has intensified, with institutional landlords now owning at least 33,000 rental units. Institutional investment in Madrid’s rental market continues to grow, with the multifamily sector expanding by 27% since 2022. Investors are also increasingly diversifying their portfolios beyond conventional rentals, pouring capital into student accommodation and senior living. According to Atlas Real Estate Analytics, more than 11,000 units are currently dedicated to co-living and flex-living, with a pipeline of over 15,000 additional units set to enter the market.
The Future: Urban Regeneration and Housing Expansion
Madrid is actively working to increase housing supply through large-scale urban regeneration projects. Key developments like Madrid Nuevo Norte, Los Cerros, and Campamento aim to deliver tens of thousands of new homes over the next decade, with a strong focus on delivering more houses for the people in Madrid.
Despite ongoing challenges, Madrid remains a prime destination for investors, driven by strong rental demand and institutional confidence in the city’s future. As the market evolves, the biggest challenge will be striking a balance between affordability for residents and sustainable returns for investors.
Madrid’s living sector is at a turning point—whether it can meet the demands of a rapidly growing population while maintaining investment appeal will define its housing market in the years ahead.