New apartments even in Palma's less desirable districts can be as much as 300,000 euros. | Pep Verger

In the Palma district of La Soledat, there is a housing development with a cheapest price of 165,000 euros. This is unusual for a city where newly built apartments can easily go for 350,000 euros and more. The developer, VAES Homes, says that the apartments have all been sold, including the most expensive one - for 200,000 euros.

What makes this development particularly unusual is the general price of land. The company explains that "it is difficult to find land at affordable prices," adding that "half of the buyers are foreign investors". Owners of land don't want to lower prices, while developers face an added burden from a 30% rise in the cost of materials. Even in La Soledat, one of Palma's least desirable areas, other new apartments cost around 300,000 euros.

Neus Truyol, Palma's housing councillor, argues that a "mantra" that if there is more developable land, the price of housing will fall "is a lie". When José María Aznar of the Partido Popular was Spain's prime minister, the land law was changed and it was easier to build on rustic land. "A construction boom followed and the price of housing rose."

Under the urban plan for Palma that was introduced in 1998, there were 1,046 hectares of developable land and another 494.71 hectares that remained to be developed. "Despite the fact that there was land, the price of housing just kept on rising." The amount of developable land in the revised urban plan has been reduced to 238.12 hectares.

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Truyol adds that the price of housing involves variables other than just the availability of land. "Under the new plan, we envisage a denser city, with fewer hectares but more people. The homes will be smaller because the families are too." The councillor says that 50 per cent of new homes will be protected, i.e. they will be VPO social housing for which prices are set by the Balearic government. The aim is to go from 1,500 homes at present to 10,700.

Luis Martín, president of the Proinba property developers association isn't convinced. "It's not feasible to build protected housing. In Palma, there is no land and even less so at a price that allows VPO." He estimates that the cheapest land in Palma is 400 euros per square metre. This is "in bad locations such as Son Gotleu or La Soledat". In other areas it can be as much as 1,500. "There are no large sites to build a minimum of 50 homes." As for the lowest price of 400 euros per square metre, Martín says that another 1,700 euros would have to be added in order to build VPO homes with energy efficiency. "On top of this, you have to pay for licences."

For VPO to be feasible, he reckons that land would have to cost 150 euros per square metre - 25 per cent of the final cost of the apartment. That sort of land doesn't now exist.

Meanwhile, the price of secondhand homes continues to rise, the cheapest apartments costing no less than 150,000 euros. Eduardo Robsy, a former Balearic government director-general for housing, points out that "every time someone says that there will be less construction, the land automatically increases in value". According to the Spanish government, he notes, Palma has the second most expensive land in Spain. For him, a recipe for affordable new housing is to "listen to the developers". "More land is needed but the political winds are moving in another direction."