We have become accustomed these days to the new found liberties that modern communications have afforded us, liberties that less than two decades ago were virtually unheard of. Skype, email and frequent flight schedules allow more and more of us to live separately from where, and how we earn a living. You can run your corporation, or freelance operation from anywhere you can get a mobile signal, or hop on some local WIFI connection, which in this day and age is more or less everywhere. Even some those of us who not so long ago were shackled to a physical location by the nine to five, now have the luxury of ‘popping in’ to the office once a week, or a few days a month if the boss trusts us to work hard at home, and home can be anywhere near a reasonably priced flight back to base, which these days can also be virtually anywhere. What’s not to like?
Mallorca, The Islanders home port is a fine example. Some of the more upmarket neighbourhoods on the island are doubling up as corporate headquarters for businesses based in Dusseldorf or Stockholm, London or St Petersburg. For so long Mallorca has been the byword in package tourism, but it’s steady transformation into a luxury suburb for every major European city is gathering pace. Palma’s trendy districts and historic old town have seen rapid gentrification over the last decade, with the pace of change gathering speed every year. Why live in a pricey and dreary London commuter belt when you can live in sunny Palma and be in central London in a little under three hours? The inevitable result of this is a boom in property prices, and an exponential rise in monthly rents as the economic basics of demand and supply swing into action.
The recent rise in short term lets, through sites like Airbnb is also adding to the property pressure in Palma. Two bedroom apartments can be rented out for 75 euros per night in high season, as opposed to perhaps 600 euros a month to a long term renter a few years ago, and it’s not difficult to see why many of these city centre apartments are no longer available to locals to rent. This is presenting something of a problem for Mallorca, and a problem that has no easy solutions.
Spain has more than a few economic woes that despite a steady improvement from the depths of the economic crisis a decade ago remain stubbornly difficult to overcome. It has one of the highest underlying unemployment levels in the EU, it has one of the highest levels of income inequality across the continent, and endemic low pay, that in many cases see wages actually lower than they were a decade ago. A monthly wage of 1000 Euros used to be seen as a starting point, now this is seen as often the norm, or even an aspiration of the millions of Spaniards who call themselves ‘mileuristas’. This income inequality is feeding a downward spiral that many find impossible to escape. Those who dare to complain, or campaign for higher pay are at risk of being shown the door as millions of unemployed are willing to take their places, and often Spanish manufacturing companies are cutting costs by moving operations overseas to keep prices to their low paid customers down, further feeding the problem. Low pay affects over a third of Spaniards, and three quarters of the under 25’s. This is not just the traditionally lower paid jobs in the hospitality industry, but teachers, nurses, council workers, bus drivers, office staff and, well nearly everyone.
This is a problem nationwide, but exacerbated when you contain it on a small island. In the summer Mallorca needs tens of thousands of extra workers, many at the lower end of the earnings spectrum. Waiters, hotel cleaners, chefs, transfer coach drivers, and even thousands of extra police, they are all vital to the island’s summer business and they all need a bed here in high season, and over the last few seasons recruitment of these people has become a problem. Just look over the horizon at Mallorca’s neighbour where these problems are even worse. Ibiza airport has to fly it’s baggage handlers in every morning and home every evening as they simply can’t afford to live there.
In most parts of the world housing bubbles tend to get deflated when the gap between average earnings and average pay gets too wide as the houses become out of reach by the people trying to buy them, but in places like Mallorca, Ibiza, central London, Barcelona and more, the normal rules do not apply. If the local people cannot afford the properties, hedge fund managers from Zurich, or web designers from Oslo will snap them up instead. Leaving it up to the market to correct this problem on its own is not going to work.
It is easy to observe the gentrification of areas, with designer shops, fashionable bars and chi chi restaurants as only a good thing, but if as a result there are no people to teach your kids, empty your bins, or pour you a coffee you cease to function as a society, and unless we figure out how to fix this sharpish, we will be there before you know it.
By Phil D. Coffers
The Islander Economics Correspondent