The Spanish Property Crash – Who Is To Blame – Part 1

I am perplexed by why anyone has any doubt about who is responsible for the Spanish property crash.  The blame, surely, must be laid firmly at the door of the Spanish national government – just as it can be with the governments of the UK and the US whose countries are suffering a similar property market meltdown.

After all there was no secret about what was happening.  Far from it.  Look at any charts or financial information over the past five years and you will see that an unrealistic and unsupportable disparity between average incomes and property prices was obviously developing along with a massive rise in personal debt.

All the signs of a lethal ‘bubble’ developing were present even to the simple minded and had been flagged (at least for us Britons) as being similar to those that triggered the 1990s recession – rising mortgage to salary multiples, self-certification loans, increased mortgage terms and property over-valuations.  Meanwhile, property prices were rising at a rate that could only be considered artifical and for which there was no fundamentally sound reason.

In Spain, of course, all of this was mixed in with a total lack of planning or building control whether aesthetic, legal or logical.  Meanwhile, naiively, the Spanish believed that they had universally inherited the Midas touch despite being clueless about the size of the market, what the market wanted and how much property it required at a given price.

So, why are governments to blame when their populations were so obviously driven by an hysterically illogical belief in the acceptability of high debt levels and an absurd conviction that property was the supreme elixir of wealth?

The answer is simple.  The population of a country are not economists and tend to be as unsophisticated about financial matters as they are about the complexities of urban traffic flow.  This is understandable and why, as taxpayers, a population employs, through the state apparatus, specialists and specialist departments – whether for health and safety or for the economy.  These specialists, such as the Financial Services Agencies, are paid (normally highly) to ensure the long term well being of the majority of the population.

Unfortunately, over the past few years governments and the state apparatus responsible for economic stability and control have failed – utterly – despite previous lessons and the facts indicating a potential catastrophe being obvious and available to them.

An apt analogy may be the desire of the population of a given town to move at unrestricted speed within their urban area (something, in principle, we all want!).  Despite a recent and devastating high speed crash – imagine a town council deciding to remove all traffic lights and speed inhibitors.  Over a period of time there would be many near fatal accidents of which the council would be fully aware before there occurred a truly terrible and all too predictable calamity – perhaps involving a lorry full of aviation fuel.

By Nick Snelling – Author of “How to Sell Your Spanish Property in a Crisis”

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