Hot Labour Anyone?

This post has one sovereign virtue: apart from in the current sentence it will not refer, either directly or indirectly, to the Catalan Statute. The topic it does deal with however is probably equally vital for the future of Spain. The issue is Spain’s housing boom, and the role of immigration in fuelling it. Two facts above all others stand out: Spain is currently ‘enjoying’ the longest and deepest housing boom (in the current round) among all the world’s developed economies (see this useful article from the Economist, or this one from Business Week), and Spain is also enjoying sustained rates of immigration which – at around 2% of the population per annum, may well be the most intense ever experienced in a developed economy. For purposes of comparison I could point out that Spain’s net migration rate of 17.6 per thousand in 2003 contrasts sharply with that recorded for the old European Union 15 for the same year – 5.4 per thousand – and is even well above the level recorded by Germany in the early 1990s – a maximum of 9.6 per thousand in 1992 – or by France in the early 1970s. So there is a housing boom, and there is immigration, the question is, what is the connection?
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The Dangers Of A Housing Boom

Last year 700,000 new homes were built in Spain. A record number, and one which seems disproportionately high for Spains real future housing needs. In all likelihood the Spanish property market will one day crash, and prices drop considerably from their current highs. But what if they don’t? What if we ‘merely’ get a soft landing. This is a question the FT puts today in the US context, but what it says may be even more applicable to Spain. The economy is driven by the construction and property sector, simply slowing-up is going to have repercussions.

As property values have soared so has the level of interest in working in real estate. The number of realtors in the US has jumped by 45 per cent over the past four years to 1.1m, and many have left blue-chip companies or even delayed college to join the property jamboree. More joined the profession last year than at any time since records began in 1975.

Add in jobs in residential construction, furniture and DIY stores and mortgage finance, and the buoyant property market emerges as the main driver of employment growth over the past four years. Economy.com, the consultancy, estimates that about a third of the 2.6m jobs created in that period were in housing-related sectors.

This raises the question of what happens to these workers when the housing market cools.

Just In Time?

Tony Blair inched home to a historic Labour third term in the UK last week. But looking at the changing tempo of the British economy over the last couple of months, you could be tempted to ask: was this a case of ‘just in time’ electioneering?

At the present time there seems to be a general consensus that Blair will back down during this parliament, and that the natural heir apparent is Economics Minister Gordon Brown. However if Blair won the election despite the Iraq war, and thanks mainly to economic prosperity, we could ask ourselves whether changing winds of fortune might not make the heir rather less apparent when the time for handing over actually comes.
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Housing Review

My out-of-consensus speculation that the Bank of England’s round of interest rate rises may be pretty much done looks sounder by the day. There may be one more rate increase, but it wouldn’t surprise me at all if they were pretty much over with it, and even if the next move (the end of this year?) wasn’t downwards. The reason? Growing evidence that the UK housing boom is bottoming out, and with this, UK consumption starting to take a hit.

U.K. mortgage lending growth probably slowed in August and consumer confidence may have weakened in September, suggesting economic growth peaked in the second quarter amid rising interest rates, surveys of economists showed……

House prices fell 0.6 percent in August from July, the first drop since August 2002, according to Edinburgh-based HBOS Plc, the U.K.’s largest mortgage lender. It was the biggest decline since December 2000.

Bank of England Governor Mervyn King and his rate-setting committee said they may have underestimated the effect of any decline in home values on consumer spending, according to minutes of the Bank of England’s Sept. 8-9 meeting.

“We’ve just come through a very slow holiday period and there is a general agreement that September is no improvement,” said Richard Hair, president of the National Association of Estate Agents. “We’re getting geared up for what may be a difficult market in the autumn.”
Source: Bloomberg

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This Is One To Keep An Eye On

2003 was a good year for the Spanish banks, with interest rates at historic lows, lending boomed. News has it today that net profits at Santander Central Hispano, Spain’s largest bank, rose 29.6 per cent in the fourth quarter to ?681m ($857m) mainly on strong mortgage lending in Spain and growth in its consumer finance business in Germany and Portugal. Net profits totalled ?2.61bn for the full year, a 16 per cent increase over 2002 and the best year on record, while credit inside Spain was up 16.2 per cent as the housing boom continued on its relentless path hence generating strong demand for mortgages.

So good luck to the bank, and that’s it. Well again, not exactly. Why is there a boom in consumer credit and mortgage lending right now in Spain? That really should be the question.
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