The Credit Bubble Lives

There has been a fairly generalized consensus that one of the sources of our current economic straits was the widespread availability, and subsequent abuse, of credit. In the simplest terms, many wrongly thought that reeling in resources from the future to fund a present, that would presumably be unsatisfactory without this facility, was a rational life plan.

Little did we know, at least until Edward Hugh gladly straightened us out yesterday, that this strategy can also be used in the provisioning of evidence to back a thesis.

In a post entitled, Three Million Unsold Properties In Spain? (published in Spain Economy Watch, A Fistful of Euros and probably the five or six other blogs to which he cross posts his stuff in order to clog up Google searches with the one true truth*), Mr. Hugh reveals the existence of 1,098,264 heretofore unaccounted for dwellings - adding yet another millstone around the neck of the Spanish economy. The figure comes from a recent study of Spain's property and construction sectors and appears in the table on page 34 with the heading, 'Viviendas no iniciadas con proyecto' - a good enough translation being 'Homes not started but with approvals in place'.

Can the reader see the similarities here?

Edward, apparently not getting enough bang for his histrionic buck from current data, ups and decides to borrow a million homes from the future and add them to the present stock. This may be effective in a headline generating (if not factual) sense, but he should be advised that it is not a costless or risk free gain. In some admittedly far distant future, when those projects slowly begin to wake up, he will have to remove them from any calculation he might conjure up concerning the resumption of an unsustainable real estate trade. That's how credit works.

Not that we expect him to honour the rules of coherence or fair play, we'll also point out that there are 327,350 dwellings started, but stopped only partly finished (which Mr. Hugh wrongly identifies as being 'under construction', duplicating the prior category on the table) which also have to be withdrawn from play. To repeat: spend them now, you can't have them later.

There is one group of Spaniards that may, on the other hand, take heart from this numerical legerdemain - those that find themselves shut out of the home buying market for reasons of price, income and accessibility of credit. They will, in this magical world in which homes require neither roofs nor walls nor electricity nor plumbing in order to be defined as such, probably be able to pick up a nice three bedroom in Arturo Soria for about 50,000 euros, say.

*Some of these are listed in the sidebar links under the heading, 'What Gutenberg Hath Wrought'.

Update 20:52 same day

The above mentioned piece has now undergone its (at least) second re-edition in twenty four hours. The first was in response to a comment which we sent questioning certain aspects of his analysis. Having 'comment moderation' set to 'on', our remarks were apparently not seen as fit to be viewed by minors. The suggestion was, however, taken to heart and the appropriate changes were made.

Today's edit involves the correction of the 'under construction' error mentioned above and the insertion of, ...together with the 1.098 millon for which planning permission has been granted and which now have two years - by law - to be completed...'. This is quite true. Unfortunately for the thesis, the fact is that the penalty for not beginning construction within two years of receiving the approval is the expiry of the work permit... which, in the unlikely event that we're thinking clearly, seems to imply that they would no longer count as viviendas no iniciadas con proyecto from the moment that they had outlived their legalized status. Taking a reasonable guess that the bulk of these enterprises would have dated from late 2007 forward, one would not be remiss in believing that the most of these phantom houses will cease to exist in even a statistical sense by the middle of next year.

Will Mr. Hugh, at that point, post an article on the rapidly dwindling Spanish housing stock? Don't bet on it.

Check it out here - before it gets edited again.

By the way, no charge for the redaction services, sir. A citation would be nice, though.

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