Insanity: doing the same thing over and over again and expecting different results

Once upon a time, there was campo, that stretched from the mountains to the sea. A few small groups of traditional single storey houses dotted the landscape, in locations where homes had replaced other simple farming homes over the centuries. As the early years went by, an occasional modern house was built by someone from the town who had ‘made good’ or even by an adventurous foreigner with independent income, wanting to live in the sun. 

Suddenly, 50 years ago, a whole urbanisation was built beside the main coast road, with homes being bought by foreigners and locals enjoying the late 1960’s boom. ‘Pop’ went that market in the recession of the early 70’s, but as the decade moved on, wealth and jet planes brought more vacationers, so the builders moved in again and created a few simple urbanisations by the sea. Another oil crisis and recession stopped that, with buyers and builders losing all, but the bricks and mortar lived on. As the wealth and confidence in the future grew again in the 80’s more urbanisations were built, with landowners with influence persuading the rudimentary planning authorities that their plot was better than the one next door, even though the building appeared just to have been dropped in the campo and didn’t even have tarmac roads from the coastal highway. 

Guess what? Yes, another recession at the beginning of the 90’s, jobs and businesses lost and more empty homes. But the demand is still there when the money or credit starts to flow again, so the 90’s and the new millennium saw increasingly fast development; as one was completed and profits were ploughed into the next two and so it multiplied. Everyone had credit, from individuals signing up for three or four apartments intending to sell the extra ones on at a profit and so have theirs for free; to builders, promotors and banks borrowing from those further up the line ‘creating’ assets to lend.

Surprise! The recession to end all recessions in 2007, with whole countries wealth wiped out. Nobody had money for anything, though all could see the opportunities for more. In recent years they’ve been able to reach out for those with gradually easing credit so cheap as to be no cost at all. After all, with countries creating ‘wealth’ with quantitative easing, there is such a weight of money out there, that must be put to use. All down the line, the pressure is on for borrowers to lend and make the money work, so that now we could be seeing some ‘optimistic’ short-term decisions being made just to ensure that the money goes out and the lending manager’s bonus is paid.

Is it to be different this time round, with us all having learned? Well, maybe tomorrow, but Municipalities and those who run them have debts to repay and the quickest way to do that is to issue building licences. And so in the 1,000 Ha area described before (see Home-building boom on the Costa del Sol, but is it sustainable?), the 26+ developments crack on with their marketing and building. The results are very promising indeed, with 40, 50 and 60% pre-sold, “only a few apartments/villas left”, “the sales office isn’t manned as we’ve sold everything”. There is interest from all of Northern Europe, but really can there be that many individuals and families wanting to live or holiday in this area? “Ah, well, many of the buyers are investors looking to sell on as the market rises or rent out to the strong holiday demand”. “Excuse me, but haven’t I heard this before, perhaps in 2005, 2006 and even, oh no, 2007!” 

As far back as 2015 there have been predictions of another recession in or around 2020. Are we being prudent and limiting development to a sustainable amount? How that can be as we run helter-skelter along the same path as has been done in the decades before. Yes, the banks have passed their crisis tests and are stricter on mortgages to individuals. But there is so much money now available through giant investment funds and they are the ones lending to the building promotors or even doing so themselves. They don’t have the same supervision and controls, but if they go down, the effects upon countries wealth could be just the same as before – and the countries and increasingly indebted populations no longer have the wealth to ‘rescue’ them. So as before, advice to the promotors is to build fast, complete and then study the world before ploughing the profits back into more speculative development. Indeed, we live in interesting times.

* This article has been written by a third party not owned or controlled by Spanish Property Insight (SPI).
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