Ignacio Ezquiaga, a 63-year-old economist from Madrid, has had an interesting career path, starting as an academic before moving to the banking sector. He worked in various roles in several entities during the real estate bubble at the beginning of the century and the long crisis that followed. Now, he is returning to research with a study presented by Funcas (the research service of the former savings banks) that aims to explain the causes of the housing accessibility crisis in Spain. The study focuses on the way banks granted loans to developers two decades ago, highlighting the reckless lending practices that contributed to the crisis.
The study, titled “The system no longer finances bubbles: housing shortage and credit decline,” delves into the first decade of the century to explore the root causes of the 2008 crisis. Ezquiaga is keen to investigate the ultimate origin of the crisis, which he believes lies in the excessive lending practices to the real estate sector. He emphasizes that there was a lack of control in the credit channel, with many loans granted to developers who failed to deliver the promised housing units. This irresponsible behavior was fueled by an atmosphere of euphoria and speculation that permeated the sector.
Reflecting on his experience during the bubble period, Ezquiaga acknowledges that banks were unaware of the risks associated with issuing loans based on inflated property valuations. The study reveals that the outstanding credit for real estate projects in Spain reached up to 30% of the GDP, a stark comparison to the current level of around 5%. The economist traces the origins of the crisis back to the massive revaluation of lands and the unrealistic expectations that began to drive property valuations, leading to a speculative frenzy.
The aftermath of the housing bubble has had profound consequences, particularly concerning housing accessibility for young people in Spain. The traditional system of social housing was eroded during the boom years, leaving a significant gap in affordable housing options. Ezquiaga points out that the younger generation, who were not directly involved in the crisis, are bearing the brunt of its impact. A growing wealth disparity between younger and older households has emerged, with older households holding the majority of the country’s wealth.
The economist calls for a reorientation of housing policies to address the current crisis and bridge the generational wealth gap. He highlights the need to create a public housing segment to complement the private market and make housing more affordable for all. While recognizing the challenges of restructuring the housing sector, Ezquiaga believes that involving the private sector in this transformation is crucial. He sees an opportunity to turn the housing crisis into a profitable business endeavor by making housing more accessible to a wider range of buyers.
In conclusion, Ezquiaga’s study sheds light on the lasting impacts of the 2008 crisis on Spain’s housing market and the broader economy. By analyzing the root causes of the crisis and its aftermath, he calls for a nuanced approach to housing policy that considers the needs of all generations. The findings underscore the importance of reevaluating the current housing model and implementing reforms to ensure a more equitable and sustainable housing market for the future.
