The Real Estate Bubble in Spain: Causes and Consequences

Text by Emilia Bruck
When the global financial crisis caused the growing real estate bubble to burst in 2008, Marcos Vaquer Caballeria was at the end of his term as a General Manager of Planning and land policy for the Spanish Ministry of Housing. Specialized in planning law, social administrative law and law of public organization, Mr. Caballeria now teaches Administrative Law at Universidad Carlos III de Madrid, where he welcomes the group of “Follow the Money” graduates on their first day in Madrid. Educated as a lawyer and economist, Mr. Caballeria’s lecture gives insight into the legal backdrop of “the Real Estate Bubble in Spain – Causes & Consequences”.

Dr. Marcos Vaquer Caballeria2

Coinciding with the U.S. subprime mortgage crisis, which eventually lead to the financial crisis and recession, Spanish real estate values started to drop in 2007 to a current of 30%. The progress leading to the collapse of the Spanish housing market stems both from the specificity of the market and public policy conditions in Spain. A practice of mutual alignment, which evolved since the countries accession to the European Union in 1986.

The ease of accessing affordable credits and bank loans was enhanced by the liberalized financial market, which enabled Spanish banks to borrow additional money from other EU countries, such as Germany, lending it then again to seeking home owners in Spain. The credits nurtured a rising housing demand of a growing middle class, which liberated itself form the traditional Catholic mentality and pursued a more progressive lifestyle, implying less children or mono-parental family structures. The post Franco demographic shift was further influenced by EU citizens seeking second residencies in the Mediterranean South as well inflows of immigrants predominantly from the African and South-American continents. The expansible access to credit affected a housing situation, where ownership of dwelling currently comprises 90% of the Spanish housing stock, while only 10% of the dwellings are rented. A remarkably high value, in comparison to other countries such as Germany where a mere 50% of the housing stock is privately owned. In his lecture Caballeria, thus, stressed the question whether the controversial development should be considered an issue of culture or a matter of incentive. Particularly promotional measures by the government such as tax reduction for property ownership implied an alliance between the state and real estate developers.

2013_01_12_Mad_PGOUM97_PAUs SanChinarro

The public policies, which enhanced a development causing speculative effects are rooted in the land use liberalization of 1998. As part of the transformation process towards a democratic, politically center-left oriented, Spain, the first urban expansion plan or “Plan General” for Madrid was drawn in 1985. The plan, also named “Plan Mangada” after its municipal planner, had the objective of consolidating the central area of Madrid, while expanding a network of greenery in the urban periphery, which was for the first time defined by an urban highway, the M-30. The statutory division differentiated between urbanized zones of the city center, designated building land and protected zones. The plan ultimately limited the growth of the city, while focused on the restructuring of its core. In the course of the political shift towards the center right, in the late 1980s, a new “Plan General” was drawn. The policy changes implemented in 1998 inverted the land division into the urbanized zones and protected islands of greenery, leaving the vast majority of the greater municipal area unregulated and available for development. The permissive atmosphere encompassing the housing market unleashed a wave of speculative building practice. In the subsequent eight years an increase of urban land prices by 500% and housing prices by 150% was induced.

Caballeria summarizes the general consequences of the Spanish market and policy practice as the vast accumulation of financial capital next to extensive foreign debt and vulnerability in the aftermath of the global financial crisis. The crucial actors in the tale where national banks such as BANKIA, which issued 50% of its granted credits for land development. The spatial implications encompass both success stories and failures. Some of the positive examples of urban practice, such as the waterfront development in Bilbao, have in fact become role models for urban policies within the European Union. The projects of urban renewal and infrastructural development in Barcelona or Oviedo are examples which significantly benefited from the loans granted by the European Investment Bank (EIB) or financial aid by the European Regional Development Fund (ERDF). Such success stories are, however, overshadowed by the numerous urban failures, which entailed the loss of extensive capital. Most often likewise subsidies by the European Union. Known examples are the City of Arts & Sciences in Valencia, the Ciudad Real Airport South of Madrid, which remains unused since 2011, the unfinished Castellón-Costa Azahar Airport or the highway from Cartogena to Vera.


The state of unregulated urban development, as it has been the case within the greater Madrid area, caused an unprecedented urban sprawl, which Caballeria describes as an „artificial surface of land“. Between 1987 and 2000 land coverage increased by 30% contrasting a mere 5% growth of the Spanish population. Spatial examples, which were implemented as part of the development are the neighborhoods of Sesena and Vallecas, subjects of exploration during the “Follow the Money” excursion.

Most notable amongst the specific consequences of Spain’s “Economy of bricks”, which formerly employed 30% of the population in the construction sector, is the current unemployment of 5 Million citizens as well as a housing inventory of 676.038 dwellings. The dilemma of mortgage pay offs has lead to a series of evictions since 2008, affecting a mere 30.000 individuals and families across Spain in 2012. Contrary to US American mortgage laws, the Spanish law obliges home owners to pay off their loan including its interest and late fees, despite having been evicted and the dwelling regained by the bank.

As regards to the question of Spain’s financial outlook Caballeria renders it with irony: ”Some say they see the light at the end of the tunnel, others say it’s the headlight of the train about to hit us”. Despite the wariness towards such prognosis Caballeria suggests the Spanish real estate bubble to last for another 5 to 7 years.

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