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The right to housing and the unfulfilled promise of the social contract

The right to housing and the unfulfilled promise of the social contract

February 4, 2025

Topic of the week:

By Daniel Mayor Ibeas

Jean-Jacques Rousseau’s Social Contract, published in 1762, is a fundamental work of political thought that proposes a social pact where individual liberty and life in society can coexist. Rousseau argued that this balance requires a legal framework based on equality and mutual respect, in which all citizens are equal before the law and act as both sovereign and governed. Today, the spirit of this social pact faces new challenges, such as guaranteeing access to housing for future generations, putting collective well-being at risk.

The failure of housing policies in Spain cuts across all governments and is the consequence of a mistaken thinking: believing that the market alone can efficiently allocate a good that is both a basic need and an investment vehicle. Spain faces a historically low housing supply. The exception was at the beginning of the century, when, thanks to cheap credit, 650,000 homes were built at the peak of the housing bubble, compared to a natural rate of replacement of the housing stock of some 250,000 new homes per year. Today, the number of housing starts remains at historic lows. For more than a decade, just over 100,000 homes have been built each year, a figure that is completely insufficient to meet the ever-increasing demand.

Not only is housing not being built, but population pressure is also playing a major role. Spain’s population has increased by 1,500,000 people in the last three years, reaching 49 million by early 2025, thanks largely to immigration. In addition, factors such as the tourist rental boom and changes in family patterns – with more and more people living alone – aggravate the situation and continue to push up housing prices, putting pressure on rental and purchase prices, especially in densely populated urban areas. Spain’s family-centered welfare system has real estate as its fundamental pillar. With 89% of retirees owning at least one home, the system fulfills its function in intergenerational terms. However, this model is generating an evident gap: those who inherit wealth and those who do not have access to it. In the next two or three decades, this inequality will become more acute, dividing society between beneficiaries of concentrated inheritances and those who will be excluded from any form of real estate savings.

No government has promoted a significant increase in housing construction, since increasing supply would reduce prices, directly affecting voters over 65, for whom housing is their main asset. It is enough for a small part of these voters to feel harmed and change their vote for the politician responsible to lose his or her position. Aware of this, politicians avoid taking the necessary measures to solve a problem that requires planning, investment and a collective vision of progress.

Homelessness not only perpetuates inequalities, but also fosters social divisions in a context of zero-sum expectations, where the aspirations of some can only be realized at the expense of others. This leads to clashes: young versus old, middle class versus lower class, everyone versus the rich, landlords versus tenants, me versus the neighbor, etc.

A return to the Rousseaunian ideal requires public policies from the perspective of the common good. His critical thinking invites reflection on how society can be organized in a more just and equitable way, where individual freedom is not lost, but enriched by being part of a community governed by principles of justice and solidarity. This includes facilitating new generations to build their lives and emancipate themselves, just as their parents did, by facilitating access to housing, while reducing social tensions within a framework of equality and mutual respect, promoting more equitable and sustainable systems that protect both landlords and tenants.

Beacon of the markets:

Volatility was once again one of the main factors in the financial markets. The week began with the irruption of DeepSeek, a Chinese AI company that made public the results of its platform, showing a much higher efficiency than what was known so far, and at a much lower cost. This caused an earthquake in the technology sector, as this news made us rethink the investments that would be necessary to access the latest technology, and after a first analysis it was concluded that the revenue projections of large companies such as Nvidia, could be cut significantly (Nvidia fell more than 17% in one session).
This week we start with the confirmation of the first tariffs imposed by the United States, so volatility will remain in the markets for some time.

As a direct consequence of the increase in volatility, we saw the US indices lose a large part of their gains for the year: the S&P 500 lost 0.95% and the Nasdaq 100 1.36% to close at 6,043.53 and 21,478.05 points respectively. On the other hand, Europe saw its main indexes close with gains, partly due to good corporate results and partly due to the low presence of semiconductor companies. The Euro Stoxx 50 gained 1.30% on the week and the Ibex 35 stood out with a 3.25% rise.

In fixed income, 10-year bond yields eased by 6 to 8 basis points, after central banks ratified the movements that the market was anticipating. The ECB lowered its interest rate by 25 bps to leave the deposit facility at 2.75%, still 1% above where the market believes it should end 2025, a trend that could be affected by Trump’s policy decisions. For its part, the FED did not make any changes and ratified investors’ estimates, i.e. that the FED will not lower interest rates again until macro data show that inflation is under control, and will also wait to analyze the impact that the measures adopted by the new government may have.

Gold, which remains very close to its all-time high, rose by 1.42% during the week, closing at 2,835 USD/Onz, demonstrating its resilience when doubts come to the market. For its part, Brent dropped 2.42% to end the week at 75.67 USD/b. The easing of tensions in the Middle East and fears that global economic activity could be negatively affected by direct US intervention are behind the drop, without forgetting the excess idle production capacity that exists at the moment.

In terms of macroeconomics, it is worth noting that China released its PMI data just before the market closed for the Chinese New Year celebrations (this is the year of the snake). The data disappointed, coming in significantly below estimates. In Europe, the GDP figure was released and failed to reach the 1% target (0.9%). In addition, the unemployment rate rose to 6.3%, as expected.

US macro data generally fell short of analysts’ forecasts, but came in at levels that demonstrate the good health of the US economy. The biggest surprise was the fourth-quarter GDP data, which grew by only 2.3%, compared to the estimate of 3.2%, and it would not be surprising if it were to rise in the next revisions of the data. The PCE figure met expectations, rising slightly to the level expected by experts, 2.6% and 2.8% respectively for PCE and core PCE. This data would reassure the Fed about the future evolution of inflation.

The results season is progressing favorably, with 179 companies having presented their accounts with an average increase in EPS (earnings per share) of +10.1% vs. +7.5% expected before the start of the first release. Results beat 79% vs. 16.2% that disappointed. Note that so far we have seen mixed results among the Magnificent 7 that have already released.

The phrase:

And we leave with the following quote from Mother Teresa of Calcutta, founder of the Missionaries of Charity congregation in Calcutta in 1950: “We know very well that what we are doing is but a drop in the ocean. But if that drop were not there, the ocean would be missing something”.

Summary of the behavior of main financial assets (2/3/2025)

This report does not provide personalized financial advice. It has been prepared independently of the particular circumstances and financial objectives of the people who receive it.

This document has been prepared by Portocolom Agencia de Valores S.A. for the purpose of providing general information as of the date of issuance of the report and is subject to change without prior notice.  Portocolom Agencia de Valores S.A. does not assume any commitment to communicate such changes or to update the content of this document. Neither this document nor its contents constitute an offer, invitation or request to purchase or subscribe for securities or other instruments or to make or cancel investments, nor can they serve as the basis for any contract, commitment or decision of any kind.

The information included in this report has been obtained from public sources and considered reliable, and although reasonable care has been taken to ensure that the information included in this document is neither uncertain nor unambiguous at the time of publication , we do not represent that it is accurate and complete and it should not be relied upon as if it were.  Portocolom Agencia de Valores S.A. assumes no responsibility for any loss, direct or indirect, that may result from the use of the information offered in this report. Behaviors of variables in the past may not be a good indicator of their results in the future.