Recent months have seen house prices in Spain rise for the first time in six years, after the housing sector was badly hit by the financial crisis. José García Montalvo writes that one of the most damaging aspects of the crisis in Spain was that the housing bubble experienced during the 2000s was also accompanied by declining productivity.
LSE.ak.uk–It is well known that one of the culprits of the Spanish economic crisis was the housing sector, as was the case in many other countries such as Ireland and the United States. The size of the Spanish housing bubble was huge: in just a few years the ratio of housing prices over household disposable income doubled from 4 to close to 8. But the worst part of the housing bubble and Spain’s “marvelous decade” was the decreasing productivity of an economy concentrated on building houses, alongside the institutional corruption tied to the development of land and the housing business. In fact, an important part of the current corruption problem in Spain stems from the easy money of the prodigious years of the housing bubble.
Read more on LSE.ak.uk: Housing Market Revival Probably Won’t Kick-Start Spain’s Economy