What Spain's housing bubble should teach us

As you may all know, the 2008 financial crisis in the US was caused by the housing bubble bursting. In Spain, the problem was much worse. The property bubble began in the mid 80s, remaining stable throughout the 90s and growing again in the early 2000s before it popped in 2008. As seen in the pic below, price per square meter grew very fast




The bubble led to a plethora of houses being built. From 2000 to 2005, more houses were being built in Spain than in Germany, France, and the UK combined even though all three of those countries had a larger population. For sake of comparison, population grew from 38 million in 1981 to 46 million when it popped. When it popped, the unemployment rate reached a high of 26.1%. To be fair, Spain always had a high unemployment rate. In 2007, it reached a low of 8.2%.

So how did this housing bubble get started? Was it the failure of capitalism or something else?

Well, as it turns out, government policy may have played a role

The desire to own one's own home was encouraged by governments in the 1960s and '70s, and has thus become part of the Spanish psyche. In addition, tax regulation encourages ownership: 15% of mortgage payments are deductible from personal income taxes. Further, the oldest apartments are controlled by non-inflation-adjusted rent-controls and eviction is slow, thereby discouraging renting. Banks offered 40-year and, more recently, 50-year mortgages.

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Spanish property bubble - Wikipedia

In other words, government incentives led to property being artificially valuable while undercutting renting.

Here's the thing. Home ownership is not a human right. Maybe shelter is a human right but owning your own 2 storey house is not.

Masterhawk said:

As you may all know, the 2008 financial crisis in the US was caused by the housing bubble bursting. In Spain, the problem was much worse. The property bubble began in the mid 80s, remaining stable throughout the 90s and growing again in the early 2000s before it popped in 2008. As seen in the pic below, price per square meter grew very fast

View attachment 67264726


The bubble led to a plethora of houses being built. From 2000 to 2005, more houses were being built in Spain than in Germany, France, and the UK combined even though all three of those countries had a larger population. For sake of comparison, population grew from 38 million in 1981 to 46 million when it popped. When it popped, the unemployment rate reached a high of 26.1%. To be fair, Spain always had a high unemployment rate. In 2007, it reached a low of 8.2%.

So how did this housing bubble get started? Was it the failure of capitalism or something else?

Well, as it turns out, government policy may have played a role


Spanish property bubble - Wikipedia

In other words, government incentives led to property being artificially valuable while undercutting renting.

Here's the thing. Home ownership is not a human right. Maybe shelter is a human right but owning your own 2 storey house is not.

Click to expand...

Well said in the bolded, my friend. You stated that in a pretty reasonable manner.

Masterhawk said:

As you may all know, the 2008 financial crisis in the US was caused by the housing bubble bursting. In Spain, the problem was much worse. The property bubble began in the mid 80s, remaining stable throughout the 90s and growing again in the early 2000s before it popped in 2008. As seen in the pic below, price per square meter grew very fast

View attachment 67264726


The bubble led to a plethora of houses being built. From 2000 to 2005, more houses were being built in Spain than in Germany, France, and the UK combined even though all three of those countries had a larger population. For sake of comparison, population grew from 38 million in 1981 to 46 million when it popped. When it popped, the unemployment rate reached a high of 26.1%. To be fair, Spain always had a high unemployment rate. In 2007, it reached a low of 8.2%.

So how did this housing bubble get started? Was it the failure of capitalism or something else?

Well, as it turns out, government policy may have played a role


Spanish property bubble - Wikipedia

In other words, government incentives led to property being artificially valuable while undercutting renting.

Here's the thing. Home ownership is not a human right. Maybe shelter is a human right but owning your own 2 storey house is not.

Click to expand...

Yes and no.

The Spanish property bubble is quite unique. You state that it started in the 1980s and grew until it burst thanks to the US subprime crisis. Not exactly true.

People foeget or ignore certain facts.

1) Spain from the late 1970s onwards became a bigger and bigger tourist destination. After democracy came, it also became the primary place northern Europeans went to buy thier second home, aka vacation place. This spurred a massive boom in building that was necessary to meet demand.

2) most Spaniards inherit thier house/home. So while home ownership numbers are the biggest on the planet, the mortgage do not exist on most of those homes.

3) Because of the tourist boom many Spaniards invested via mortgages in buying holiday rental homes. For years it was very profitable (still is).

4) the 100% mortgages and 40 year ones was actually targeting the foreign buyers and it was more than often banks like Barclays that pushed them.

Now this does not mean that government regulations did not influence the boom, because it did...especially the lack of control with the Cajas, aka local savings banks of owned or controlled by political parties or the Church. But the biggest reason for the boom was Northern Europeans wanting second homes in the sun.

The irony is there is actually lack of housing in Spain. Children stay at home more than often till they are in the mid 30s because they can't afford renting or buying.

Oh and the boom is on again with prices above pre crash numbers now.

Sent from my JSN-L21 using Tapatalk

PeteEU said:

Yes and no.

The Spanish property bubble is quite unique. You state that it started in the 1980s and grew until it burst thanks to the US subprime crisis. Not exactly true.

People foeget or ignore certain facts.

1) Spain from the late 1970s onwards became a bigger and bigger tourist destination. After democracy came, it also became the primary place northern Europeans went to buy thier second home, aka vacation place. This spurred a massive boom in building that was necessary to meet demand.

2) most Spaniards inherit thier house/home. So while home ownership numbers are the biggest on the planet, the mortgage do not exist on most of those homes.

3) Because of the tourist boom many Spaniards invested via mortgages in buying holiday rental homes. For years it was very profitable (still is).

4) the 100% mortgages and 40 year ones was actually targeting the foreign buyers and it was more than often banks like Barclays that pushed them.

Now this does not mean that government regulations did not influence the boom, because it did...especially the lack of control with the Cajas, aka local savings banks of owned or controlled by political parties or the Church. But the biggest reason for the boom was Northern Europeans wanting second homes in the sun.

The irony is there is actually lack of housing in Spain. Children stay at home more than often till they are in the mid 30s because they can't afford renting or buying.

Oh and the boom is on again with prices above pre crash numbers now.

Sent from my JSN-L21 using Tapatalk

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Vern will confirm this is Bush's fault.

American said:

Vern will confirm this is Bush's fault.

Click to expand...

In part it is, because the credit crunch was caused by the American banking system and its lack of oversight around sub-prime mortgages. Here Bush was in charge when it happened, and had been in charge for 5 years, but of course Clinton is not blameless nor are the GOP and Democratic held congresses of the various times.

There is no doubt that there was a bubble and the politicians did not do much about it, but the trigger of the crash was when the whole banking sector around the world ground to a halt. That had a massive effect on all business world wide, and that of course meant that people could not get mortgages in Spain, companies could not extend credit lines and all that.

PeteEU said:

Yes and no.

The Spanish property bubble is quite unique. You state that it started in the 1980s and grew until it burst thanks to the US subprime crisis. Not exactly true.

People forget or ignore certain facts.

1) Spain from the late 1970s onwards became a bigger and bigger tourist destination. After democracy came, it also became the primary place northern Europeans went to buy their second home, aka vacation place. This spurred a massive boom in building that was necessary to meet demand.

2) most Spaniards inherit their house/home. So while home ownership numbers are the biggest on the planet, the mortgage do not exist on most of those homes.

3) Because of the tourist boom many Spaniards invested via mortgages in buying holiday rental homes. For years it was very profitable (still is).

4) the 100% mortgages and 40 year ones was actually targeting the foreign buyers and it was more than often banks like Barclays that pushed them.

Now this does not mean that government regulations did not influence the boom, because it did...especially the lack of control with the Cajas, aka local savings banks of owned or controlled by political parties or the Church. But the biggest reason for the boom was Northern Europeans wanting second homes in the sun.

The irony is there is actually lack of housing in Spain. Children stay at home more than often till they are in the mid 30s because they can't afford renting or buying.

Oh and the boom is on again with prices above pre crash numbers now.

Sent from my JSN-L21 using Tapatalk

Click to expand...

Yeah, tourism doesn't do well in a recession. Maybe that played a role.

PeteEU said:

In part it is, because the credit crunch was caused by the American banking system and its lack of oversight around sub-prime mortgages. Here Bush was in charge when it happened, and had been in charge for 5 years, but of course Clinton is not blameless nor are the GOP and Democratic held congresses of the various times.

There is no doubt that there was a bubble and the politicians did not do much about it, but the trigger of the crash was when the whole banking sector around the world ground to a halt. That had a massive effect on all business world wide, and that of course meant that people could not get mortgages in Spain, companies could not extend credit lines and all that.

Click to expand...

Did I call this or what?