In my series on articles about diverse topics, this time I chose the Spanish housing bubble. It is always interesting to get the view from outside about any problem, in this case, a foreigner’s point of view about the housing bubble in Spain.
I did not write this article so here is the link to the source, in Fortune magazine. Image credit to the blog “deserted places“. The image is not from the town they mention in the article but from Ciudad Valdeluz, another famous ghost town after the economic bust.
The road to demolition: Inside a Spanish ghost town
November 15, 2013: 12:08 PM ET
There are still about 750,000 unsold new housing units in Spain. Now that the real estate bubble has popped, the
question is what happens to all the excess housing.
By Ian Mount
FORTUNE — On the outskirts of Zaragoza, a provincial capital on the semi-arid plains 200 miles north of Madrid, fields of huge electricity generating windmills surround the tiny town of La Muela. One might think that, in the land of Don Quixote, these giants would serve as a prosaic warning of the dangers of engaging in flights of fancy.
- Unsold: Something that has not yet been sold.
- Housing units: houses, flats.
- To pop: when a bubble pops it explodes and disappears.
- Outskirts: the outer areas of a town or city. For example in Madrid, Las Tablas, Montecarmelo or the “P.A.U. of Vallecas”
- Semi-arid: not completely desertic, but with few plants and trees.
- Windmills: Don Quixote thought they were giants and wanted to fight them.
- Tiny: very small.
- Prosaic: realistic, not imaginative.
- to engage in something: to spend time and effort in doing something.
- flight of fancy: something impossible and impractical to achieve.
Walking the streets of La Muela, it quickly becomes clear that they have not. Barely two blocks outside of the village center, historic stone houses give way to condo complexes that have been finished, boarded up, and left empty. Further out, tinfences surround windowless townhouses and condos, and at the edge of town, where it returns to scrub, a half-finished concrete skeleton features stairways to nowhere.
- Barely: it expresses a very small quantity of something, a very small distance or time. e.g. I had barely arrived home when the phone rang.
- Condo complexes: a condominium is a block of flats where each flat is owned by a different family and they have to decide by voting. The most common form of real estate ownership in Spanish cities.
- Boarded up: to prevent people from breaking them and entering empty or abandoned houses, windows are covered with wood boards.
- Tin fences: metallic walls that usually surround areas where something is being built.
- Windowless: the space fo the window exists, but the window has not been installed.
- Townhouses: A townhouse is a traditional kind of quality row-house, which used to be common in places like cities in the US. Here is an example.These were typical for – rich – people who lived in the country but kept a house in the city for their visits.
There is finished, empty housing for some 2,000 people and unfinished housing for another 1,000 just in the center of the 5,000-person town, according to Enrique Barrao of La Muela’s town planning department.
“There are so many empty houses;; thank god people haven’t gone in like in the big cities, where there are squatters,” says Victor Canales, 49, as he gestures at a shuttered building across from his row house. Canales brought his family from Zaragoza to La Muela in 1999, attracted by the quality of life of the small town, which then had about 2,500 residents.
- Housing: buildings or parts of them dedicated to live in them, in contrast with factories, offices, warehouses or other structures.
- Squatters: people who live in buildings without a legal right to do it. Usually they live in abandoned buildings such as factories or warehouses.
- to gesture: to make a movement with the face or other part of the body such as a hand, to indicate something.
- Shuttered: closed with shutters. Shutters are elements added usually to the outside of a window. When these elements are closed, light and noise are mostly or completely blocked.
- A row house: also known as terraced house, is a house that is part of a long line – a row – of usually identical houses.
Like many towns in Spain — not to mention Nevada, Florida, California, and Ireland — La Muela tried to ride a speculative real estate boom during the 1990s and 2000s. With money coming in from the windmills and real estate developments, mayor María Victoria Pinilla — since brought up on real estate-related corruption charges — built a bullring, a concert hall, a sports stadium, an aviary, and three museums. (The museums are “temporarily closed for technical reasons,” according to a sign on the town’s tourism office, which is also closed.)
La Muela is not alone. Even with a 38.9% drop in home prices since a 2007 peak, according to real estate consultancyTinsa, there are still about 750,000 unsold new housing units in Spain.
- To ride: to stay on top of something while it moves (for example: a bicycle, a motorbike, a horse or a wave)
- Speculative real estate boom: an economic period of growth and prosperity motivated by a lot of activity in the real estate market. Real estate: property like land, or buildings.
- Real estate developments: building projects from one building or a few houses to places like Seseña or Marina D’or.
- Mayor: the highest authority in a town or city. Compare the pronunciation of Major, Mayor and mare (a female horse)
- Brought up on: faced with court charges (on introduces the reason she was brought up (to court) (to bring up: to make someone go up, get near)
- Corruption charges: official accusations of being corrupt.
- Bullring: the place where bullfighters fight the bulls. e.g. Las Ventas in Madrid.
- An aviary: a place where exotic birds are kept an exhibited.
- A drop: a sharp, quick fall. As with thousands of words in English, “drop” can be used both as a noun and as a verb. To “drop” means to fall, “a drop” means the action of something falling from a higher level. Finally, that explains why a drop is a very small amount of liquid.
- Peak: the top of a mountain. Figuratively, the highest point in something, for example, house prices.
- Real estate consultancy: a company that offers advice and help on matters connected with real estate (property, see definition above).
- Unsold housing units: houses or flats that have not been sold.
Now that the bubble has popped, the question is what happens to all the excess housing. And the answer to the problem may be simple, and ugly: demolition.
“If you can’t anticipate demand for housing within a manageable period, say five years, the cost of mothballing houses, even completed ones, to keep them serviceable and habitable for the future is very expensive,” says Alan Mallach, a fellow in the Metropolitan Policy Program at the Brookings Institution. “And if you don’t, it gradually turns into an eyesore and blight for people who live around it.”
- Within: inside. commonly used to refer to periods of time.
- manageable: that can be managed
- “say five years”: a colloquial way of saying “for example five years”.
- To mothball: to keep something in good condition while it is not being used, so that it can be used in the future.
- Serviceable: that services (like water, gas, electricity) can be provided because the necessary infrastructure is in working condition.
- Eyesore: literally a visible infection in your eye. Also something so ugly that seeing it you feel that way.
- Blight: deterioration, in this case deterioration of urban areas.
While it’s hard to pinpoint the economic effects of vacant houses, a recent Federal Reserve Bank of Cleveland studyfinds that having a vacant property within 500 feet reduces a house’s selling price by at least 1.4%.
Of course, making the decision to demolish housing is dangerous for a politician, especially during a crisis when many people have lost their homes to foreclosure. This may explain why so little excess housing has been demolished and why those overseeing Spain’s housing problems are not touting it as a top option.
- To pinpoint: to signal something with precision, as if using a pin.
- A recent Federal Reserve Bank of Cleveland study: notice that some words (Federal Reserve Bank of Cleveland) are written with initial capital letters. This means that it is an official name. The Federal Reserve of the United States is the equivalent of Banco de España and is structured in districts as you can read on the wikipedia article here. Each district has a branch of the Federal Reserve, in this case in Cleveland. The same as Banco de España or the European Bank, they make economic studies.
- Vacant property: land or buildings (“real estate”) which are not being used.
- Within 500 feet: inside a space located at a maximum distance of 500 feet. (1 foot= 30.48 cm)
- Foreclosure: the administrative process of canceling a mortgage (a loan obtained to buy real estate) before the time originally planned, because the owners can not meet the monthly payments. This includes evicting people, that is, forcing them to leave their foreclosed home.
- To oversee: To supervise in order to control.
- To tout: to promote.
Spain set up a “bad bank,” known as Sareb, to take over bad real estate assets during its financial crisis, and it now has an inventory of about 90,000 properties (including 55,000 housing units). The entity has set aside 103 million euros (about $140 million) for demolition, but Sareb’s communications head, Susana Díaz, stresses that the entity has no definite plans for demolition and would never demolish housing with value (though this hasn’t stopped the country’s demolition companies from preparing for business).
- To take over: to assume control. (In driving, to move the car’s position from behind other vehicle to in front of the same vehicle.)
- To set aside: to separate something in order to use it for a specific purpose, different from the rest.
- To stop someone (or something) from: to make it impossible for someone or something to do some specific task. another example: Her mother stopped her from crossing the street because a big truck was coming. This verb works in the same way as others such as “prevent someone from something” which is a synonym.
Still, some governments and banks have come around to demolition. Ireland’s “bad bank,” NAMA, demolished a 12-unit apartment block in County Longford last year. And there have been isolated demolitions of new and partially built houses in California. In some situations — especially in the case of unfinished, isolated developments — there may be no alternative.
- To come round: to be convinced about something, often after having an opposite opinion in the past.
- A 12-unit apartment block: a block containing 12 appartments.
- Isolated: separated from everything else. (notice: not to be confused with “insulated” which means deliberately separated from something [cold, heat, water, noise…] by using specific methods or materials.)
“If you have a development far from any town, forget about it. It will never bounce back,” says Antonio Argandoña, a professor of economics at Barcelona’s IESE Business School.
On a bluff overlooking the highway to Zaragoza, five miles from La Muela, deteriorating concrete skeletons mark what was once supposed to be Ciudad Zaragoza Golf, a golfing community housing development. Of the 2,316 units planned for the first phase, only 36 have been granted occupancy licenses, says La Muela town planner Enrique Barrao. The development’s handful of residents complain about non-existent municipal services, and when I ask the driver of the Zaragoza-La Muela bus line how these people get home, she shakes her head. “No bus goes there,” she says.
- Development: in real estate the word development means a group of housing units or industrial facilities built at the same time as a group. In some cases it could be similar to the spanish concept of “urbanización”.
- to bounce back: the movement of something elastic as it goes back to the original or previous position. For example if you throw a tennis ball against the wall it will bounce back towards you.
- Bluff: a higher place, often a rocky place, from which you can see the area around you, which is usually flat and at a clearly lower level.
- to overlook: to look at something from a high place (so you look over it).
- Once: this word has two meanings:
- 1) “one time” (on one occasion) example: He only tried a cigarette once and he didn’t like it. 2) “in the past, in contrast with the present) example: Detroit was once a big industrial town. Now there are thousands of empty buildings and the town is bankrupt.
- to grant: to give an official permit.
- Occupancy licences: an official document that states that a house is in good condition to live in.
- Handful: a quantity of something that can fit in your hand. Compare with a “fistful” which is what you can keep inside your fist, your closed hand. Ironically where in English you use “handful” in Spanish you would use “fistful” (“puñado”).
In downtown La Muela, however, residents are not yet thinking about demolitions;; they’re still coming down from a boom in which the town even subsidized their vacations. “The town paid, wherever you went,” says Victor Canales, who took subsidized trips to the Dominican Republic, Argentina, Brazil, and Mexico. “We were a famous town for our quality of life.”
There still may be hope for La Muela. A passel of new residents have moved in, attracted by small town life and low real estate prices. At the edge of town, where the sidewalk goes to dirt, Susana Escaño straps her baby into a car seat in front of a new, sparsely occupied complex. She moved from Zaragoza three years ago, because her family couldn’t afford anything in the city.
- Downtown: the central area of a town, as opposed to the “outskirts”.
- Subsidized: paid with public money (subsidies).
- Passel: (very rare) a big number, a lot.
- Sidewalk: area in a street where pedestrians can walk.
- Dirt: waste material. If something goes to dirt it means it is not properly maintained and it is deteriorating.
- To strap: to fix something or someone in place by using straps. Straps: long narrow pieces of material made of some fabric or plastic. The safety belt in a car is made of straps. Interesting for women when they go buying underwear: strapless bra
- Sparsely occupied: very few houses are occupied, and people are not concentrated in one place.
“Now, you hit yourself in the head because what you bought is worth so little, but, oh well, I like it,” she says. Why?
- To be worth: to have some value (no necessarily economic value). A famous slogan from L’Oreal: Because I’m worth it.