• Editorial – Thoughts on Ibiza Property Rentals – Nick Gibbs

I am not attempting to scare monger here. I wish to draw focus to where some people’s heads and priorities may be right now. I will not just be moaning with a buck passing ‘something has got to be done’, I will try to put forward some ideas to ease if not resolve the situation.

Perfect Storm

Ibiza has been in what is commonly accepted as a housing crisis for several years. Whereas other areas may be looking at some level of housing crisis resulting from the economic fallout of Covid-19, Ibiza may be heading for a crisis on top of an existing crisis. A housing crisis perfect storm.  

Unspoken Fear

Whilst people are generally happy to share their thoughts on issues such as their civil liberties being infringed, or their children suffering under the strain of lockdown, people are far less likely to post about their financial plight. Some will, but for many pride will prevent them doing so. People are understandably reluctant to say, ‘I’m fucked’.

Is Ibiza Heading Towards a 'Perfect Storm' Rental Property Crisis?
Is Ibiza Heading Towards a 'Perfect Storm' Rental Property Crisis?

Implications

However, I doubt many people will need to hear it from those affected to realise that there will be serious financial implications of both the lockdown and the months that follow. This will be particularly evident in tourist regions and particularly in Ibiza with its unique economy. One well understood feature of that economy is high property rental costs resulting from demand exceeding supply.

Figures

The figures I have used in this article are obviously nothing more than reasoned guesswork. But I think I have been very conservative. But you do not have to accept my figures to see it as a problem. If you think I have overestimated you can easily apply your own numbers, and how many homeless families is OK? At the end of the day, even if you see the problem as being one tenth of my guess, it is still a big problem.   

Food Bank

My numbers are theory, but an example of serious financial consequences, and worsening financial consequences, came across my desk yesterday.

An Ibiza Town resident told me of a newly opened food bank that is visible from their apartment balcony. I have known this person for many years and trust their testimony, plus they gave me video evidence.

It is not only that another food bank has opened, though that is cause for concern in itself, but also it is how rapidly he says the queue is increasing.

It has doubled in a week and now 200m long, a socially distanced 200m, but that is still quite some queue – I have not yet had to join a queue as long at any supermarket, and when your food bank queues are longer than your supermarkets’, you’ve got a problem.

Tenants at Risk

Ibiza has a population estimate of 147,000 people. This is officially documented people, so the actual figure is almost certainly higher. But I will use the official figure and then apply my reasoned guesswork. 

Let us say 10% of Ibiza’s permanent residents live a hand to mouth existence, i.e. what they earn goes to pay immediate bills including rent. They have no real savings. What they earn in a month, they spend in a month. I think that is a pretty conservative estimate. 14,700 wage earning people.

Let us say half of those cannot earn at all during this crisis. 7,350 wage earning people.

Let us say half of those are not eligible for any of the aid initiatives, either due to being employed black or not fulfilling whatever criteria. Again, I think conservative. 3,700 wage earning people.

Some of those people would be supported by someone who is still working/gets aid, so perhaps these 3,700 people account for the income of 2,000 households/families. 2,000 households at risk/unable to pay.

The average household is 3.4 people. Being conservative in reflection of many of the people affected being young single and couples, let us reduce this to 2.5 per household with 2,000 households. 5,000 people in 2,000 households at risk of losing their homes in Ibiza as a result of the economic fallout of Covid-19.

Remember; if you think I have overestimated you can easily apply your own numbers, and how many homeless families is OK? At the end of the day, even if you see the problem as being one tenth of my guess, it is still a big problem.

Timeline

Most will have already paid their March rent, so the first rent these people could not pay was April.

The first time any of these people would have any chance of earning would be June, but realistically perhaps July at the earliest for most of them.

By July they already owe 4 months’ rent, and they will not be earning amounts that give them any realistic prospect of repaying 4 months back-rent alongside their current rent becoming due.

The way the system works, with 6 months unpaid rent being required for eviction, these at risk tenants will have 2 options.

Continue in arrears.

If they can start paying rent, they may be able to continue in their current tenancy with 4 or 5 months’ rent owing. The landlord will not be happy, but there is little they can do legally.

The landlord would be unlikely to renew the tenancy, so would end up effectively losing a few thousand euros.

The family ultimately lose their home and must add the burden of moving costs to their already dire situation.

Eviction in Six Months

If they cannot start paying rent – and who knows what the job market will be like in the Ibiza version of our ‘new normality’ – the way the system works, it will become pointless trying to pay the landlord anything. I am not talking morally here, they will still feel the moral obligation, but at this stage of four months arrears and two months until eviction they will only be thinking about the impending eviction and the urgent need to keep a roof over their heads. In reality most will put whatever money they can get together towards the deposit and fees of a new property.

Outcome is the landlord loses even more money but does bring the matter to a conclusion more quickly.

The family again loses their home, and must add the burden of moving costs to their already dire situation.

Demand

A point landlords may need to consider is that whereas for the last few years losing a tenant was no issue as they could replace them immediately and many times over, this may not continue to be the case.

If large numbers of evictions take place in September and October, where will the supply of tenants come from? Without any influx of seasonal workers and a general economic hit from the crisis it may be that the only pool of tenants are people being evicted from other properties, people who will by definition be marginally viable over the 2020 winter, until the return of earning prospects in the 2021 season.  

Nobody Wins

As far as I can see absolutely nobody wins in these scenarios. OK, there may be a few people looking to make the move to Ibiza who would have a larger choice of properties  than has been the case in recent years, but apart from that very small number, nobody wins.

Landlords lose thousands and may end up with new tenants in an equally precarious financial state as the ones they have just evicted.

Thousands of families whose lives have already become stressed to the point of breaking have the added burden and costs of losing their home in a situation where finding a new one will not be easy.

Thus far the Government’s aid and directives relating to landlords and tenants only apply to large corporate landlords with more than 8 rental properties. I do not think most of Ibiza’s renters or landlords fit into this category.

This bleak outlook is equally so for landlord as it is for tenant. If we are to avoid a potential catastrophe affecting thousands of permanent Ibiza residents and at least hundreds possibly thousands of landlords, recommending that tenant and landlord enter into communication is not enough.

This situation will not apply to Ibiza alone, but with our already sizeable housing issues piling these covid-19 crisis issues on top of them could just be a catastrophic for our island.

It would be overdramatic to liken it to a Steinbeck novel, the Grapes of Wrath exodus of Oklahoma people impoverished by circumstances outside of their control, but inevitably a lot of people would be forced to abandon their Ibiza life if no help can be found. They might not be leaving Ibiza with their possessions piled on a mule drawn cart across a dustbowl interior, but they will feel the tragedy just the same as the Oakeys. 

The Spanish government has a huge amount on its plate. It may well get to dealing with this issue, something they have been able to put to one side with the simple step of banning any evictions during the state of alarm. But if central government does not have the foresight to see these issues of mass evictions and homelessness coming in Autumn, it is essential our local Island Consell does.

Whether by regulation, guidance or even direct landlord and tenant one on one arbitration, once the embargo on evictions is lifted, this issue may become the single most important social and political matter Ibiza’s local government has to deal with as a consequence of the covid-19 crisis.

One potential solution is easy in economics but far more difficult in politics. Every vulnerable homeless family, i.e. those with children or elderly relatives, create a burden for the state. Chances are that burden will cost far more in providing emergency accommodation than the cost of that families existing rental contract. In pure economics it would seem a no-brainer, take the cheaper option that is also far better for the wellbeing of the family. However, such measures are never so easy politically.   

My numbers are a conjecture based upon the situation proceeding unchecked. I hope the situation will be checked. I hope some solutions can be found and so my figures will never come to be tested.

Property rentals will not be the only fallout challenge we will face, but it will be a challenge, and a big one.