BARCELONA: A big demonstration today in support of a November referendum on Catalan independence makes me wonder what impact this political problem could have on the housing market.
Steering clear of the arguments for and against Catalan independence, and Catalonia’s right to unilaterally secede from Spain, I’ll hazard a guess on what it might mean for housing demand and house prices.
Catalan separatists want the right to hold a referendum on whether or not to stay in Spain. The Generalitat (regional government) led by Artur Mas, plans to hold this referendum on the 9th of November, but Mariano Rajoy’s Government in Madrid says it would be unconstitutional and won’t allow it. Both sides claim to be open to dialogue whilst accusing the other of not listening, pretty much on a daily basis.
What would happen if Catalonia left Spain? The exit would be ugly, and the Basques would be right behind them, leaving Madrid to support the poorest parts of Spain on its own. So a Catalan departure would push the Spanish economy into a tailspin, taking the Catalan economy with it. It would spark off a massive hike in Spanish bond yields, a mayor European crisis, and spell big trouble for the Euro. Spanish house prices would tank as foreign demand evaporated for at least the duration of the crisis. Demand for housing in Catalonia would be hit hard, prices would fall further. All inhabitants of the Iberian peninsula would end up poorer, with house prices reflecting their diminished wealth.
Which is why none of this will happen because Madrid will never give permission for a Catalan referendum, much less a unilateral declaration of independence. It seems obvious to me that Madrid would take over the Generalitat before allowing Catalonia to break away from Spain. So there will be no binding referendum, and no independence for Catalonia.
The question then becomes how much trouble will frustrated nationalists cause? Will there be civil disobedience, as some are advocating?
If there was serious civil strife as a consequence of all this, that would unnerve investors and put off foreign buyers whilst undermining the local economy. None of that would be good for the local housing market.
But my guess is things won’t come to that, and judging by the Spanish stock market and bond yields, financial markets also assume that Spain will muddle through this crisis without too much strife. There is no culture of civil disobedience or violence in Catalonia, at least not to date.
The referendum won’t be allowed so regional elections will be held instead, which will polarise voters along nationalist lines, none of which is good. A left-wing nationalist Government will then take power, but won’t be able to organise a referendum or secede. So the problem will just keep festering, as it has for hundreds of years. Nothing new about this story then.
The 11th of September is a special day for Catalonia. Called La Diada, it commemorates Catalonia’s defeat in 1714 at the hands of the Bourbon army in the War of the Spanish Succession. For Catalan nationalists, it’s their national day.