Rising prices

Anyone who’s lived any length of time in Barcelona can testify to a big increase in the cost of living over the past few decades. The Olympics, the introduction of the euro and the advent of low-cost mass tourism have all helped transform Barcelona from simply a Mediterranean port into a glitzy economic powerhouse. By international standards, though, Barcelona has remained a relatively cheap destination. Even up to less than a year ago, neither Barcelona nor Madrid were ranked amongst the world’s most expensive cities. However, a recent cost-of-living study found that this year, for the first time, both cities fall within the top 50. Madrid ranks 26th with Barcelona following close behind in 31st place—more expensive than Munich, Brussels and even Los Angeles, according to a study by Mercer Human Resource Consulting.

As the survey takes the cost of living in New York as its base, some of this dramatic change can be explained by the weakness of the dollar against the euro. “There have been some significant changes in the rankings since last year primarily due to exchange rate fluctuations—in particular, the weakening of the US dollar and strengthening of the euro,” said study consultant Rebecca Powers.

However, such a dramatic change cannot be explained by exchange rates alone, and many companies use the study as a gauge when deciding where in the world to relocate employees. “As companies continue to send employees on expatriate assignments, they closely monitor changes in the cost of living to gauge which destination is going to be the most cost-effective,” added Powers.

The real driving force behind this increase has been the cost of housing. The Mercer study estimated that the average rental price of an unfurnished flat in Barcelona is now between €1,400 and €1,500. Meanwhile house prices have tripled within the past 10 years, according to property website, The Property Finders. In the case of Barcelona, the website states, “While the rate of increase is slowing down, a typical new 99-square-metre, three-bedroom apartment now costs in excess of €600,000—nine percent more than in 2005 and double the 2000 price.”

The average house price in Barcelona is now a third above the national average—almost €5,000 per square metre—although prices are finally slowing down. Property Finders predicts growth of around six to seven percent for 2007, decreasing to three to four percent in 2008 and in line with inflation until around 2010. The website notes that the cycle from top to bottom to top again seems to be around 15 years.

A separate study by Deloitte highlighted just how much these huge increases are affecting the average Spaniard. The research found that the traditional summer hiatus, when almost all of Spain leaves the cities, is under threat this year due to increasingly high mortgage payments. Over two-thirds of Spaniards say they been severely affected by interest-rate rises, with 35 percent saying that they have had to take measures to save money—the majority choosing to sacrifice their summer holidays as a way to cut costs.

For young people, the situation is even worse. Another recent study by the Observatorio Joven de Vivienda en España found that on average, almost 70 percent of young people’s salary goes towards paying for housing between 30 and 40 square metres. Even the UN has warned Spain that the government needs to step in before the situation gets any more serious. UN envoy Miloon Kothari warned the press in June, “The main problem with housing in Spain is that it is not affordable, with a considerable proportion of the population spending over 40 percent of their salary on mortgage repayments.”

These rising costs have been exacerbated by foreigners, particularly northern Europeans, buying second homes here. A study by Barclays Bank found that more than 50 percent of second-home owners in Spain are foreigners, mainly British, followed by the Germans and French. It also found that one in every four newly built homes in Spain is purchased by a foreigner, many of which are around Barcelona and the Costa Brava.

Of course, this crisis has been in the making for several years. Many residents trace the start of the first small rises back to the early Nineties. “In my experience, the 1992 Olympics put Barcelona on the map, and so it was no longer the well-kept secret I had enjoyed since 1986,” said English resident Simon Davies. “Without doubt, the subsequent arrival of more tourists from countries where salaries are higher and currencies are stronger encouraged prices to be hiked up.”

It was, however, the introduction of the euro in 1999 that most pinpoint as the moment when prices really started to shoot through the roof. “The turning point in terms of Barcelona getting really expensive was definitely the introduction of the euro,” he said. “There’s something in the psyche of going from large units to smaller units whereby the new prices in smaller figures don’t seem expensive. Then the complicated exchange rate didn’t help—which encouraged unscrupulous increases.”

The changeover to the euro was particularly noticeable in the prices of everyday items. Many residents recall the pre-euro days when a cup of coffee cost no more than half a euro and can now cost upwards of two euros in the more touristy areas.

However, Gaietà Farràs, president of the Gremio de Restaurantes de Barcelona, said the prices in the city’s bars and restaurants are still reasonable. “It is the euro that has been responsible for price rises in recent years. Still, Barcelona has some of the lowest prices of the major European cities, and the value for money still remains very high.”

Part of the problem is that Barcelona has simply been a victim of its own success. Investment in the Olympics rejuvenated the once dour port and the installation of a man-made beach has given the city much more tourist appeal. The subsequent discovery of Barcelona on the international map has left magazines ranging from Newsweek to Wallpaper clamouring to declare Barcelona the ‘coolest’ city in Europe. “I think it’s a general fashion-conscious glamorous bandwagon, and Barcelona has become an ‘in’ place for the last few years. This has attracted a massive influx of people—everything from tourists to trade fairs,” said Davies.

Tourism in particular has certainly seen a massive increase. The Barcelona Tourist Board estimates that almost 30 million people will visit this year—almost a 40-percent increase from 2000. Trade fairs have also brought huge amounts of money into the city. The Fira de Barcelona, the main exhibition centre, hosts 75 percent of Spain’s trade fairs, with an estimated 3.5 million visitors last year.

How much longer residents will tolerate this escalating state of affairs remains to be seen, but with youth movements emerging such as 'No tendrás casa en tu puta vida' (You’ll never be able to afford a home in your whole damned life) it seems the existing situation has already gone too far for some.

Ballooning costs; How much did prices rise between 2000-2006?

Hotels and accommodation 24.8 percent

Medical services 21.7 percent

Technology -32.3 percent

Restaurants, cafes, bars 27.1 percent

Home rental 24.1 percent

Food 23.5 percent

Tobacco 27.2 percent

Transport 29.9 percent