Environment and Planning C: Government and Policy 2012, volume 30, pages 467–486

doi:10.1068/c11193r

(Un)sustainable territories: causes of the speculative

bubble in Spain (1996–2010) and its territorial,

environmental, and sociopolitical consequences

Juan Romero

Interuniversity Institute for Local Development and Department of Geography, University of Valencia, Avenida Blasco Ibáñez, 28, 46540, Valencia, Spain; e-mail: juan.romero@uv.esFernando Jiménez

Department of Political Science, University of Murcia, Ronda de Levante, 10, 30008 Murcia, Spain; e-mail: fjimesan@um.esManuel Villoria

Department of Public Law and Political Science, University Rey Juan Carlos, Paseo Artilleros s/n 28032, Madrid, Spain; e-mail: manuel.villoria@urjc.esReceived 13 July 2011; in revised form 15 November 2011

Abstract. In this paper we analyse the causes of the Spanish property model and its territorial,

social, and political consequences. Particular attention is paid to sociopolitical contexts.

These consequences include excessive dependence on economic activity and employment

in the housing construction sector, the irreversible disappearance of landmarks in the

country’s collective history and culture, and examples of ‘policy capture’, especially at

local and regional levels. This lengthy process has led to corruption in town planning and

an increase in poor policy decisions, greatly harming Spain’s reputation.

Keywords: urban sprawl, speculative property bubble, unbalanced growth, recession,

corruption, informal institutions, cultural and sociopolitical context

IntroductionA signifi cant share of Spain’s economic growth over recent years has been based almost entirely on the construction sector. In 2007, at the height of the speculative bubble, it accounted for 9.3% of gross domestic product (GDP) (twice the fi gure for the USA) and in some autonomous regions for around 11% of regional GDP. The sudden bursting of the speculative bubble has revealed greater diffi culties for an economy heavily dependent on property. After fourteen years of uninterrupted growth Spanish society has been hit by a deep economic recession, due partly to the international climate but largely to the specifi c features of its growth model. Consequently, apart from having to manage the impact of the global fi nancial crisis, Spain must now deal with its specifi c circumstances in the aftermath of the bursting of the speculative real-estate bubble.

The vicious circle of property speculation in Spain and its devastating effects on the political, economic, social, and territorial spheres are the outcome of a series of factors: (a) channelling copious national and international savings into real estate as an investment and as speculation, aided by adopting the euro, low interest rates, and tax breaks for homeownership; (b) oversized banks that joined the speculative fever with little professionalism and regard for the consequences; (c) the absence of appropriate governance mechanisms for supervision by the relevant monetary authority and at the territorial level (ineffective accountability mechanisms); (d) very fl exible and discretionary land-use legislation, plus a mayor’s monopoly in certain processes of decision making (Iglesias, 2007); (e) a growing need for government revenue at

468 J Romero, F Jiménez, M Villoria

local and regional levels (Fernández, 2008); and (f) low-quality government institutions at these levels (a strong mayor system and clientelism) (Lapuente, 2009).

There is no certainty that Spain is willing to learn from past mistakes. The present moment should be recognised as the end of an era in our way of understanding politics, democracy, governance, and management of territory and landscape. The deep recession and its effects may turn out to be a chance to speed up the changeover to a new production model based on new priorities and values. There may be an emerging perception of a subtle change towards maturing within specifi c contexts highly relevant to driving new local and regional development strategies (Pike et al, 2006). However, certain social and political traps (Charron and Lapuente, 2011; Rothstein and Uslaner, 2005) could produce a new outbreak of corruption and environmental scandals as soon as the economy begins to recover, as we discuss in the last section.

Beyond the outcomes for Spaniards, the Spanish case revealingly illustrates a more general problem. After describing the major traits of the real-estate bubble in Spain, we depict the main consequences of its bursting for the economy, environment and territory, and politics and society. Before presenting the conclusions, we consider the crucial causal role of the cultural and sociopolitical contexts. In order to understand the origin of the bubble and its deep and calamitous outcomes, it is important to examine factors often neglected in many economic approaches. We are referring to the social contexts where individual and collective actors build the expectations which will guide their behaviour. The pioneering works by Coleman (1988) and Putnam (1993) pointed to factors such as social capital (understood by them mainly as a generalised disposal to take part in voluntarily associations); with our argument here we attempt to include certain sociological explanations, too, but reject cultural traps.

The study of institutions—or, as in this case, of an institution’s failure—must consider not only the role of formal institutions but, as North (1990) had warned, also that of informal institutions which interplay with them and determine their actual working. The role of informal institutions has been gradually attracting the attention of an increasing number of scholars in different fi elds. In this sense the works by O’Donnell (1996), Lauth (2000), Helmke and Levitsky (2003), and Bueno de Mesquita and Stephenson (2006) have an important infl uence in comparative politics and are very useful for rigorously defi ning the concept of informal institutions and for refl ecting on the different roles of informal rules in their interactions with formal institutions. Informality is also increasingly in focus in theories of economic development (Boix, 2005; Prats Cabrera, 2008). In addition, this concept has been very useful for the analysis of corruption and quality of government (Charron and Lapuente, 2011; Jiménez and Villoria, 2011; Kitschelt and Wilkinson, 2006; Piattoni, 2001).

As Granovetter (2007) said when criticising economic approaches to corruption, such as those of the agency theory (Klitgaard, 1988; Rose-Ackerman, 1999), although these explanatory models

“may be reasonable, other things equal, in practice they underdetermine outcomes because they abstract away from the social aspects of how incentives come to be arranged as they are and how they come to be endowed with the value and the meaning that they ultimately have for actors” (Granovetter, 2007, page 152).

We think the case study developed in this study is useful in showing the importance of these kinds of factors, which are sometimes very diffi cult to grasp. At the same time we pay special attention to the institutionalist origins of the Spanish real-estate bubble as a way of demonstrating that institutionalist approaches beyond the analysis of mere formal institutions open up a very relevant research fi eld.

(Un)sustainable territories 469

For example, institutional transformation is perhaps nowhere greater than in Spain where a regional tier of seventeen autonomous communities was established by the 1978 Constitution and where local autonomy is also entrenched in the Constitution (Rodríguez-Pose and Bwire, 2004). According to studies by Musgrave (1959) and Oates (1972)—among others—decentralisation should improve a region’s economic performance. However, empirical analyses of the link between devolution and economic effi ciency emphasise that it varies from country to country and is contingent upon the quality of institutions and the institutional structure of the country (Keefer and Knack, 1995; 1997). The case of Spain reinforces the theories about the importance of the quality of institutions as a variable affecting the relationship between the dependent (economic growth) and independent (decentralisation) variables.

The property bubble at the core of the imbalances: causes Between December 1995 and December 2007, during the economy’s long expansion cycle, over 6.5 million new housing units were approved in Spain. Approvals were more than 600 000 per year in 2003, 2005, and 2007 and over an extraordinary 865 000 in 2006. According to offi cial fi gures, the number of housing starts in the same period was slightly lower (see fi gure 1). Furthermore, reliable sources estimate that in 2010 there was an oversupply of new housing in Spain. It will take many years for the unsold new homes (about one million) to be reabsorbed by the market. To this should be added undisclosed amounts of land purchased by banks and individuals for residential use. This land now has an uncertain future and a value bearing no resemblance to the original purchase price, or to the value that individuals, private developers, and fi nancial institutions still assign it in their balance sheets. Ultimately, the view of the experts is that adjustments in the housing sector will continue for several years (BBVA, 2007; 2009; ESADE, 2010).

The period 1996–2007 has been defi ned as the strongest investment cycle in Spanish history. It was well above the EU average and was similar to investment levels in Asian countries, but it was also a time, according to Pérez (2011, pages 252–259), of an unbalanced growth pattern, since most of this investment was in residential and nonresidential real-estate assets, albeit with some in production and to a greater extent in human capital. This created 8.1 million new jobs, of which around 20% were in construction and over 50% in low-

Figure 1. Number of new housing starts in Spain (1996–2009) (source: Ministry of Development and Centre for Economic Studies Tomillo, authors’ elaboration).

Housing started

800 000

1996

Num

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f hou

ses

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01998 2000 2002 2004 2006 2008

470 J Romero, F Jiménez, M Villoria

productivity and low-skill activities. These job creation fi gures were published during that decade by governments of different political hues to endorse their economic policies.

What are the causes of this unique and powerful process that led to the speculative property bubble? There are economic, political, and social causes, most of them due to bad design of government institutions, particularly at regional and local levels. Next, we examine the economic conditions paving the way to the bubble.

The real-estate bubble arose in the fi rst place from the effective demand in Spain and the rest of Western Europe for temporary or permanent residence in a Mediterranean environment. This was accompanied by an increasing demand for housing from large numbers of non-EU immigrants. These forces increased in lockstep with the growing need for manpower, in part generated by the construction sector itself and with the entry into the marketplace of new speculators attracted by the growing return on investment in new housing. In neither case was creditworthiness always verifi ed.

In addition, it was easy to get low-interest mortgages, and legislation favoured massive sprawling urban development. Much of the global excess liquidity, attracted by the high return on investment in real estate, was channelled into Spain, Ireland, and the UK. The banks turned to international fi nancing on very favourable terms. The channelling of liquidity into Spain and the generation of high profi ts were greatly facilitated by specifi c factors after the country joined the European Monetary Union. Tax legislation encouraged the purchase of housing, and very permissive and fl exible basic legislation accelerated the process of indiscriminate construction by turning almost all of Spain into developable land, except for small pockets subject to special protection.(1)

Furthermore, new features associated with urban development (especially the ‘urbanisation agent’ and local urban planning agreements) emerged and were widely used and misused to contribute to processes of massive urban sprawl. The absence of appropriate legislative frameworks and effective administrative controls to limit development and environmental impact, combined with a lack of mechanisms for coordination and good land governance, did the rest. They made it impossible to roll out policies with adequate territorial coherence and cohesion (Farinós and Romero, 2007; Farinós et al, 2005; Romero, 2009).

Also, the Spanish production model revealed the ending of an economic cycle in its mature industries. This turned construction into a main driver of the economy, with a consequent dependence on it for jobs. The inadequate attention paid to improving the competitiveness and productivity of industries in some regions and in future sectors, combined with insuffi cient use of information and communication technologies (Pérez, 2011, page 262), accentuated this dependence even further. As a result, job creation came to depend on construction, with its low added value and a high degree of exposure but offering expectations of extraordinarily high profi tability. It is worth noting that between 1997 and 2007 housing prices increased by 196.7%, far above the short-term return of investment in any other productive activity.

A further element is the long tradition of a unique business structure. The small and medium local and regional bourgeoisie, linked for decades to the construction and property development sector, were joined by large nationwide companies and capital from other traditional sectors in search of higher returns, forming an infl uential real-estate block. In each local and regional sphere, and in close association with political actors, it helped sponsor real-estate projects and other unique events to promote their development.

Besides, there was a growing need for sources of funding for local and regional governments increasingly committed to policies geared towards extending the welfare state

(1) The 1998 Land Law deregulated land and declared almost all land in the country not under explicit environmental protection fi t for urban development: see Law 6/1998, 13 April, on land regime and valuations (Spanish State Offi cial Gazette, no. 89, 14 April 1998, pages 12296–12304).

(Un)sustainable territories 471

and encouraging new initiatives for economic development and improving competitiveness, particularly through the construction of unique and very expensive infrastructures (for example, highways, airports, marinas, and amazing museum complexes), considered an essential lever for increasing tourism. According to the Global Competitiveness Report (GCR) 2011–12, Spain ranks 11 among 142 countries in ‘quality of roads’ and 7 in ‘available airline seat km/week’ (Schwab, 2011). Numerous local and regional governments found short-term budget fi xes in revenue from urban and residential activity.

Finally, the spread of the so-called ‘wealth effect’ or ‘money illusion’, typical of speculative bubbles, eventually attracted and trapped broad social sectors who saw in real-estate investment the chance to make gains quickly with returns unobtainable elsewhere. This trend was encouraged, sometimes irresponsibly, by fi nancial institutions offering low interest mortgages against the backdrop of the ample liquidity described earlier.

Essentially, from an economic viewpoint the speculative bubble followed a similar pattern of events in the USA, the UK, and Ireland. However, the Spanish example also exhibited specifi c elements of its own institutional design and political, social, and economic history, which are essential to an understanding of the problem. These unique aspects included the decentralisation of political power begun with the State of Autonomous Regions, the subsequent process of creating new political elites and networks of players, and the consolidation of new local and regional institutional contexts, where clientelism could spread. The establishment of the principle of municipal autonomy has, in general, given rise to the disappearance of political opportunity criteria in the means of control that the remaining public administrations have over town councils, replacing them with mere legality controls, and also to the disappearance of their guardianship powers.

Furthermore, it is crucial to understand the peculiar characteristics of the Spanish urban planning legislation. Until the recent 2007 Land Law, which incorporates modest but important changes (whose effects are still to be verifi ed(2)), the regulation of urban development activity in Spain by the Francoist 1956 Land Law had generated an increasingly complex and sophisticated urban development model which strongly encouraged speculation and political corruption. In fact, the legal town planning framework up to the 2007 Law was based on three essential pillars: all land in the country was ‘classifi ed’ by municipal plans as fi t or unfi t for building and urban development;(3) most of the capital gains generated by land classifi cation were rendered to the fortunate owners of the land regarded as fi t for development and, from only the transition years in the 1970s onwards, just a small part of it (10% to 15%) was recovered by the public administration which took the decision on land use; and where a public administration needed to expropriate land for public use, the law required a calculation of its value that made it impossible in practice to expropriate land classifi ed as fi t for urban development.

Thus, according to these three elements, while rural land was regarded unsuitable for building and development (with no right to claim any compensation whatsoever), the land that the municipal plan classifi ed as fi t for development gained a totally different legal (and economic) status. Moreover, the legal framework until 2007 stipulated that—in the case of expropriation—rural land which became urban land under the municipal plan would be valued as if already fully developed (urbanised and built on) simply by the plan being

(2) A complete account of the anticorruption novelties in the new law is presented in Villoria (2007); for the 2007 Land Law see Law 8/2007, 28 May, on land (Spanish State Offi cial Gazette, no. 128, pages 23 266–23 284).(3) It should be taken into account that the fi nal approval of municipal plans is in the hands of the regional governments. However, the role of the regional administration is limited to a mere control of legality as opportunity issues are beyond its competences.

472 J Romero, F Jiménez, M Villoria

approved. Of course, this singular trait usually became an extraordinary source of speculation and corruption. This important characteristic of Spanish town planning emerged in the middle of the 19th century after a serious fi scal crisis led policy makers to use this method to encourage landowners to assume the costs of enlarging cities in exchange for a strong legal guarantee of keeping most of the capital gains (Fernández, 2008). This absolutely irrational element favouring landowners’ interests made irrelevant the threat of expropriation whenever a landowner did not comply with the time limit to develop his or her land in accordance with the municipal plan, allowing for paramount land speculation: landowners held their plots without investing a cent in urbanising works, waiting for an increase in land price.

The municipal plan thus became a truly powerful instrument for redistributing the economic power of land and, therefore, a battlefi eld for landowners and developers. Two pathological phenomena in Spanish urban planning are the product of this very irrational model: on the one hand, signifi cant land speculation (as the threat of expropriation did not dissuade landowners from developing their land); and, on the other hand, an irrational development of towns, with overdensifi cation of already urbanised areas in historical neighbourhoods (with considerable destruction of historic building heritage(4)) and a ‘leapfrog’ development of the new areas, as those further away from downtown were developed earlier than those closer to the centre, due to speculative retention of the latter.

Besides this institutional bad design, from the mid-1980s onwards a new signifi cant element in urban planning emerged without any supporting legislation. Some important city councils such as Madrid started to sign urban planning agreements with developers who would agree to fulfi l more commitments for the council than required by law, in exchange for amendments in the current urban plan, including the rezoning of some plots. Although these agreements were well intentioned (for instance, to guarantee that developers would build free housing for the homeless, in exchange for permission to develop slum areas), its opaque nature soon led to corruption scandals. The agreements were signed by only the developers and the town mayor and gave way to amendments of the existing urban plan—in a legal procedure with little publicity and citizen participation—which very often meant a complete transformation of the city model envisaged in the amended plan. The extraordinarily widespread use of these urban agreements in Spanish local government speaks of the greater fl exibility in the approach to urban development, but also explains the growing problems of corruption in this fi eld.

The institutions of both a strong mayor form of local government and a complex but ill-defi ned local integrity system, together with the prevalence of informal rules and institutions, such as clientelism and the perverse incentives provided by the illegal funding of parties, have all led to the adoption of short-sighted public policies and to a very serious level of local corruption, which has been both effect and cause of the property bubble. Under the Spanish legal framework, urban planning discipline rests mainly in the hands of town councils, particularly of the mayor, who issues building permits (in accordance with the current plans and after receiving technical and legal advice from local offi cers, such as the secretary general and the technical offi ce for urban planning) which a developer must obtain before starting building or urbanisation work. It is also the mayor who sanctions all illegal buildings and constructions. In fact, the regional and national governments have less room for manoeuvre whenever a mayor fails to fulfi l his or her obligations in this fi eld. They have to persuade the relevant judge to force the mayor to fulfi l those obligations.

This system of enforcement has proved extremely ineffi cient. Town councils and mayors in general have scarcely exercised their obligations in urban planning discipline. A large number

(4) The percentage of buildings dating from before 1940 is larger in Germany than in Spain, despite all the World War II destruction in the former (Naredo and Montiel, 2011, page 54).

(Un)sustainable territories 473

of town councils have been somewhat reluctant to pursue breaches of urban norms within their municipal limits, and at most they have acted ex parte when a claim from an individual has been fi led. Consequently, the demolition of buildings of unlawful construction has been almost nonexistent, being replaced by extremely low fi nes, the payment of which led to de facto ‘legalisation’. In fact, clientelism favoured the development of this way of acting. Political recruitment in the local civil service allows the partial enforcement of laws and regulations.

“To act impartially is to be unmoved by certain sorts of considerations—such as special relationships and personal preferences. It is to treat people alike irrespective of personal relationships and personal likes and dislikes” (Cupit, 2000, page 11).

When there is a meritocratic and protected civil service, impartiality is guaranteed, but in a spoils system this impartiality tends to disappear.

These and other institutional failures have a negative impact on the competitiveness of the Spanish economy, as the GCR from 2011/12 shows (Schwab, 2011). Spain ranks 55 among 142 countries in ‘favouritism in decisions of government offi cials’, 74 in ‘transparency of government policy making’, 108 in ‘wastefulness of government spending’, and 110 in ‘burden of government regulation’; ineffi cient government bureaucracy is, according to the GCR, one of the three most problematic factors for doing business. In addition, our study shows that, although devolution forces local representatives to be more responsive to clientele’s preferences, when patronage networks are historically embedded in the area this proximity can have a negative impact on economic growth because of the expansion of corruption. The ‘economic dividend’ that devolution should bring according to different authors is mitigated or nullifi ed in cases of limited local accountability, patronage networks, and weak civil society, as in Spain, because local offi cials with greater discretion and opportunity in a devolved system may be subservient to the needs of local elites, particularly when under direct pressure (Rodríguez-Pose and Bwire, 2004; Rodríguez-Pose and Gill, 2005; Rodríguez-Pose et al, 2009). In addition, local offi cials endowed with fi scal resources may be prone to being captured by local interests (Kyriacou and Roca-Sagalés, 2011). Finally, the Spanish case shows that the inability to assign responsibility in multilevel governance increases corruption opportunities because politicians are no longer forced to act in the public interest (Lago-Peñas and Lago-Peñas, 2010). To sum up, the structural conditions needed a social trap (Rothstein and Uslaner, 2005) and a bad institutional devolution design to produce this economic failure.

The 2007 crisis and the housing marketUsing information provided by the Observatorio de la Sostenibilidad en España, Mata (2007) reported on the changes that had occurred in the fi rst phase of intense Spanish urban development. Net formation of artifi cial surfaces reached almost 240 000 ha between 1987 and 2000. This was a positive net change of 29.5%, well above the average of 5.4% for the twenty-three European Corine Land Cover countries and 13.5% for the European Union. Subsequent estimates for 1997–2006 indicate that during those ten years some 140 902 ha were developed, with a land occupation rate 75% higher than for 1987–2000, with an even greater increase in the built-up area in 2001–06. In those six years alone the built-up area increased by 14.6% compared with 2000 (Burriel, 2008). In other words, more than one third of urban land was created in just two decades of Spain’s history.

Although the central government denied the sudden bursting of the speculative bubble and the effects of the recession until well into 2010, the truth is that even in 2007 the ending of an exceptional cycle of feverish development was clear. From mid-2007 to the end of 2010 all residential construction indicators changed suddenly. Using the offi cial information available, a leading expert in the fi eld has analysed the effects of a collapse that shows the

474 J Romero, F Jiménez, M Villoria

virtual paralysis of the sector, with declining indicators for housing units built, annual sales, prices, number of housing units started and fi nished, and investment (Rodríguez, 2010).

By late 2010 the number of unsold homes was estimated at between 800 000 and 1.2 million, while private demand remained almost stagnant. It is no less diffi cult to determine the full extent of the real-estate sector risk to savings banks, the current value of properties for sale, and the land purchased by these institutions at very high prices but which remains undeveloped and declining in real value. Finally, in February 2011 the full extent of the fi nancial sector’s exposure to construction and property development became known. According to data collected by the trade media from information submitted to the National Securities Market Commission, and in the absence of any additional information,

“banks and savings banks have €153 billion in allocated assets (fl ats kept by the bank), loans to developers and loans that are non-performing (NPL) [nonperforming loan] and substandard, ie, at risk of non-payment but have not yet defaulted” (Cinco Días 2011, page 14).

For its part, the Bank of Spain, after repeatedly pressing banks and savings banks to report all information, announced in February 2011 that savings banks have more than €100 billion in potentially troublesome real-estate development loans and assets (40% are for land fi nancing). These fi gures account for 46% of a total €217 billion exposure to the property sector, and the NPL ratio for some major institutions resulting from mergers of savings banks is above 12.7%. This is an extremely high, albeit manageable, risk which in all likelihood will be greater when all the information is assessed.

Economic, territorial, and environmental consequencesThe fi rst and most dramatic consequence of the collapse of the property bubble was the rise in unemployment. Real-estate-related activity had a positive infl uence for years because it was essential in maintaining economic activity and employment, and it generated profi ts as extraordinary as they were disproportionate. It is true that 90% of the jobs were on temporary contracts, 60% were low skilled, and labour productivity was low, but the fi gures for the employed labour force were excellent. It also had an indirect positive infl uence on other important productive sectors such as the car industry.

The sudden collapse of the residential construction sector led to an unprecedented increase in unemployment; since the beginning of the recession more than 2 million jobs have disappeared, half of which were in construction. The pace of job destruction was as usual more intense than that of job creation over the previous decade (see fi gure 2).

Figure 2. Evolution of the number of unemployed in Spain (1996−2010) (thousands of people) (source: Spanish National Statistics Institute and Centre for Economic Studies Tomillo, authors’ elaboration).

5000Total unemployed people Unemployed in housing

800

1996 1998 2000 2002 2004 2006 2008 2010

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(Un)sustainable territories 475

Obviously, the real-estate crisis had a greater impact on regions where there had been more urban development, more residential construction activity and associated employment, and consequently more exposure to the effects of a crisis in the sector. The urban regions of Madrid and Barcelona were affected, as were coastal areas, especially the coastal strips of Catalonia, the Valencian Region, Murcia, and Andalusia. Overall, Spain, which had achieved a historically low rate of unemployment and maintained higher economic growth rates than other Western European countries, experienced the sharpest decline. Spain has generated the highest unemployment (not only caused by the stagnation of the residential sector) and will take longer to emerge from the recession. In 2010 it had twice the unemployment rate of euro area countries and unemployment at levels of more than 20% of the labour force.

The second important consequence was that the growth model not only masked the structural weaknesses of the Spanish economy but also led to a palpable disconnection between profi tability and productivity. This factor, along with other major imbalances generated during the period, is essential to understanding what happened and the diffi culties of future recovery (Pérez, 2011, pages 258–269). The ‘call effect’ of the residential construction sector, against a backdrop of crisis in the production model and the maturing of other sectors, has accentuated the loss of competitiveness, balance, and territorial cohesion due to the ‘fl ight’ of capital from other sectors into construction in search of higher immediate returns.

Similarly, the crisis in the sector has had a devastating effect on all other economic sectors and has heightened tensions in the fi nancial system. Once the fi nancial crisis blocked access to credit, banks, and especially savings, banks faced two serious obstacles to lending to developers and providing mortgage loans to people on low incomes. These have seriously compromised their viability and stability and have reduced their ability to provide credit to businesses and individuals. Hence the outcomes of the relationships between the property crisis, the fi nancial system crisis, and economic downturn are more severe in Spain. The country is therefore going through specifi c diffi culties that share similar origins with the US and Irish experiences. In the Spanish case this has been used to undertake rapid and poorly considered privatisation of savings banks (Costas, 2011).

The third consequence has been the indebtedness of nonfi nancial fi rms, households, and nonprofi t institutions serving households and government. Spain’s largest current problem is crushing private debt. The fi nancial system is trapped to cope with its own ‘toxic assets’. In 2010 global indebtedness was €2.8 trillion (263.2% of GDP) (see fi gure 3). Outstanding property loans exceeded €1.2 trillion in December 2009 (59.5% affected households and businesses and the rest affected fi nancial institutions) (Rodríguez, 2010). Companies and individuals are having great diffi culty in obtaining credit, the ‘poverty effect’ has taken root, consumer spending has fallen, and the risk of default has increased signifi cantly (especially among the thousands of poor families, many of whom are immigrants attracted by fi nancial offers and products amounting to 120% of the price of a home). Furthermore, government debt has increased rapidly (IMF, 2011, page 7).

The rapid deterioration of public accounts has made it necessary, after many uncertainties and contradictions, to undertake reforms to rein in spending. Public authorities have realised, after a signifi cant drop in their incomes, the risk in relying on this feverish activity, and now face an immediate future of serious budgetary constraints. The main impact will be a sizeable reduction in highly signifi cant areas in the as yet little-developed Spanish welfare state.

Fourth, there has been an exorbitant and chaotic use of land to levels unmatched in any other European Union country. Various studies provide an overview of the spatial consequences of this long period of uncontrolled urban development (Fariña and Naredo, 2010; González, 2010; Romero, 2009). It has been a frantic process that usually starts at the local level without any

476 J Romero, F Jiménez, M Villoria

heed being paid to its effects. Cultural landscapes of high value and protected areas have been modifi ed, invaded, or mutilated by different mechanisms, ranging from changing legislation to fostering urban development to the use of delaying tactics in the adoption of Natural Resource Management Plans by regional authorities (Delgado, 2008a; 2008b).

This long cycle of “real estate hyper-production” has been described as a “development tsunami” (Gaja, 2008) and as a “pathological trend” within a neoliberal-inspired real-estate model (Roch, 2008). It has been particularly intense in three specifi c areas: the large Spanish urban regions (Hewitt and Hernández-Jiménez, 2010), the outlying areas of cities, and coastal zones with tourist potential. During the second half of the growth cycle the wave of residential construction eventually reached many inland and mountainous rural areas. In addition to their undoubted attractiveness and uniqueness for large segments of the urban middle classes, they are well connected with built-up areas.

These processes were particularly powerful in the coastal areas with tourist potential (Valenzuela, 2007), especially the mainland Mediterranean coast (del Romero, 2008; Martín García, 2010; Vera and Espejo, 2006), in the Canary Islands, and in Majorca and Ibiza (Albert and Rullán, 2007). Unfortunately, despite repeated European Commission recommendations on integrated coastal zone management (EC, 2002; 2007), these examples have been followed in other coastal areas (Farinós, 2011). In the Valencian Region and Castile-La Mancha and similar autonomous regions the fi gure of the ‘urbanisation agent’, included in regional legislation, has proved lethal for a local territory when combined with national legislation passed by Parliament in 1998 to deregulate land.

With a few exceptions, it is impossible to establish signifi cant differences between autonomous regions when it comes to evaluating town and country planning policies during 1996–2007. The reason is the permissive attitude of regional governments that voluntarily renounced both their obligations to provide supervision and consistency, as they approved absurd proposals submitted by different municipalities and aided the process by coordinating and drawing up supramunicipal territorial plans. All of this was combined with indiscriminate

Figure 3. (a) Indebtedness of nonfi nancial fi rms, households, nonprofi t institutions serving households, and government in Spain (1996–2010); (b) ratio of indebtedness versus GDP (source: Bank of Spain and Centre for Economic Studies Tomillo, authors’ elaboration).

Nonfi nancial fi rms/GDPHouseholds/GDPGovernment/GDP

1996 1998 2000 2002 20062004 2008 2010

Nonfi nancial fi rms

GovernmentHouseholds

1400

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€ m

illio

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(Un)sustainable territories 477

development of rural land outside municipal urban plans. Furthermore, legal forms such as Action in the Regional Interest have triggered processes with irreversible consequences, as noted in a number of reports addressing urban development and its consequences in Spain (Exceltur, 2005; 2007; Greenpeace, 2007; 2008) and by many professional experts who have analysed the trend in municipal planning (Artigues et al, 2006; Mata, 2007; Naredo and Montiel, 2011).

Fifth, during this period of intensive development of coastal and rural areas the Spanish Mediterranean city model and consequently the undoubtedly more sustainable compact city model have been undermined. As noted by Spanish geographers, a great deal of urban land has been created in a compulsive, disorderly, and scattered way, but the end result is less rather than more city. This is because, as explained by Capel (2003) and Muñoz (2004, page 101), while the word ‘city’ refers to a whole made up of social, cultural, and political practice, encompassed in the idea of polis and civitas, urban sprawl refers strictly to the physical or material aspect of the growth of the urbs and its expansion over the territory.

Sixth, what was initially a major source of government revenue has now declined sharply. For many years numerous town councils obtained a signifi cant part (up to more than one third of the total of their income) from taxes and licences for urban development, signing planning agreements, and direct sales of public land. In many cases they mistakenly computed as ordinary income what in many cases was actually nonrecurring revenue. Once this plummeted after the collapse of the property sector, the pressure on many municipal budgets, which have already resorted to borrowing up to the authorised limits, may prove unsustainable.

Political and social consequences In addition to the economic and land consequences, one needs to consider the social and political consequences of a process in which planning has not always been geared towards the public interest. On the contrary, all too often it has resulted from decisions made to meet the requests of pressure groups and business sectors. One distinctive feature should not be overlooked here: the vast majority of urban development decisions in Spain have been taken in strict legal compliance, and in most cases they have been urban developments already provided for under previously approved plans.

This paradox of the Spanish model invites refl ection and once again is bound up with social, political, and institutional culture. Until a few years ago it was thought that the predemocratic era of the 1960s and early 1970s encapsulated all the most noteworthy elements of what was called desarrollismo. It was logical, it was said, if we consider that it was a period when there were no democratic governments, there were no appropriate regulations, and Spain was not part of the group of European democratic countries. However, and herein lies the paradox, now that we are part of a European Union that has made environmental conservation and land and landscape protection one of its most notable goals, we have a consolidated democratic system, and matchless regulations in place, the greatest ever urban development in Spain’s history has taken place, in most cases, on a completely untenable basis far removed from the provisions of European directives and the very regulations and plans of democratic regional and local governments. Indeed, the desarrollismo of the predemocratic period, which has been easily surpassed by the advancing development of the last decade, now pales in comparison with the scale of the current disaster.

The fi rst question providing food for thought is that the speculative bubble grew against a backdrop of broad social support. The explanation, which in turn is our greatest collective challenge, continues to be an issue of social, political, and institutional culture. Culture is the essential intangible on which democratic institutions can be constructed, together with a moral substrate and solid foundations based on public and private ethics. When culture and ethics fail, when there is no solid civil society, and when democracy has not taken root or fully matured,

478 J Romero, F Jiménez, M Villoria

it is easier for processes like those noted above to fl ourish. The evidence of what happened in the recent past leaves little doubt about the existence of a collusion of interests, confusion between the public and the private, infl uence peddling, illegal use of insider information to speculate, a lack of transparency, and a lack of complete and accurate information for the public—in short, the institutional pathologies of “misgovernment” (Nieto, 2008) and episodes of political corruption. Never has there been so much talk of diffuse corruption in town and country planning since the beginning of the transition to democracy, or so much diffuse opacity in decision-making processes related to urban development. Equally, and this should not be forgotten, never has there been such permissive complicity between various social sectors taking part in a ‘win–win’ game.

The second is the occurrence of ‘capture’ processes. These are well known in some Latin American countries such as Mexico and other countries with little democratic tradition (Matsuda, 2007), but they have also taken root in developed countries like Spain and Italy. One of us described the process as casino capitalism (Romero, 2005). By this we meant the following: when large projects that substantially modifi ed land use in hundreds of municipalities were the result of prior private agreements between developers and local and regional political leaders were subsequently given legal legitimacy; when general interests were sidelined or ignored in favour of interest groups; when basic ‘protocols’ of the rule of law disappeared or were changed; when the land was seen only as a fi nancial asset and an exploitable resource and not as an identity and cultural reference point; when discretionary power prevailed over the security and democratic participation of all the actors involved and affected; when it was the offi ces of the development companies that actually shaped development processes; and when senseless development initiatives were supported by favourable environmental impact reports.

The third is that political corruption increased. As pointed out earlier, there is strong evidence about the existence of collusion of interests, blurring of the line dividing the public and the private, infl uence peddling, illegal use of insider information, and lack of transparency. These are processes that have tested the functioning of the basic protocols of the rule of law, which all too often have undermined public confi dence in the functioning of the system—Spain has dropped down the table in recent reports by Transparency International 2010—and have even led to consternation in a European Parliament that since 2005 has discussed three highly critical reports about the worrying situation of town and country planning in Spain (European Parliament, 2007; 2008). According to a November 2009 public hearing of the Spanish Attorney General before the Parliament, the Public Prosecutor’s Offi ce was investigating almost 750 cases of political corruption, involving more than 800 politicians (most for crimes related to urban planning).

During recent years there have been some excellent studies of cases of corruption associated with urban development (which some have described as systemic), its causes, and consequences for the quality of democracy. Some of the most representative (Estefanía, 2007; 2010; Greenpeace, 2007; 2008; Iglesias, 2007; Jiménez, 2009; Jiménez and Villoria, 2008; 2011; Transparency International España, 2008) provide an overview of the scale of a process that goes far beyond the strict limits of politics. They point to the need to undertake urgent and far-reaching reforms in many areas, especially at the local level, where the repertoire of noncompliance and shadowy areas have made impunity and illegal practices possible. The catalogue of the most common illegalities, well systematised by some of these studies and reports (Iglesias, 2007; Transparency International España, 2008; 2009), suggest areas where the government should take priority action. No less surprising are some of the most recent Court of Auditors (2008, pages 41–46) reports referring to ‘widespread violation’ of legislation on the use of municipal land assets in 72% of the municipalities audited.

(Un)sustainable territories 479

On this point it is essential for Spain to undertake reforms to enhance transparency and accountability. These should not be limited to the proposals and demands made by the Spanish Federation of Municipalities and Provinces (FEMP, 2006, pages 88−108) for more money, less external control, further reductions in democratic control of council meetings, and greater independence in deciding on spending. On the contrary, they should compel the parties concerned at the three levels of government to review the current funding model and the powers currently assigned to local government. However, in view of recent experience and on the basis of knowledge of which mechanisms have obviously failed at the local level, local governments should also bring in a vast array of obligations, counterparties, and external controls of the kind that experts are already asking for (Mira-Perceval, 2009).

The fourth is that the quality of democracy has been weakened. The processes described above and their consequences go way beyond the strict limits of party and government and ideological persuasion. They are more about the debate over the quality of democracy, about the solidity of a country’s civil society, and about the prevailing social culture. Many local and regional elections echo this when episodes of poor politics and even corruption are not subsequently punished at the polls. However, this does not mean that there is no decline in public confi dence in government and political parties, as is repeatedly emphasised in opinion polls taken by the Centre for Sociological Research. Other reports go even further and warn of the deteriorating quality of democracy in Spain and the risk of “disaffection” (Estefanía, 2010). No less important is the risk that political cynicism will take root in Spanish society in a period when politics, albeit in postheroic times (Innerarity, 2009), is more important than ever.

According to a recent democratic audit, following the methodology of the Human Rights Centre (Essex University), the quality of the Spanish democracy is declining, and the most important reason for it is corruption (Estefanía, 2010). This problem operates in a country with a historical tendency to mistrust political institutions and politicians (Torcal and Magalhaes, 2010). In sum, Spain’s memories of civil war and dictatorship, the early socialisation in institutional mistrust, combined with the novelty and uncertainty even of its system of democratic governance, explain that citizens of the country have a thick culture (Mishler and Pollack, 2003) of institutional disaffection. Probably because of that, they may be especially sensitive to government corruption. Thus, the recent outbreak of corruption cases in Spain may have had especially pronounced consequences on the citizens and on the social fabric of the country’s democracy [see Special Eurobarometers on corruption 2006, 2008, and 2009 (EC, 2006; 2008; 2009)].

Finally, there has been an evident worsening of Spain’s reputation and image. With the far from negligible precedent of the European Parliament reports on town and country planning, Spain has long been the object of attention and monitoring by international experts and media. Not only do they warn about its economic situation and the lack of transparency in its fi nancial system but they also repeatedly portray an image of Spain which is different from that of a few years ago. The well-known report by The Economist (2008) marked a turning point that many others have since followed. Hence a key objective must now be to improve the Spain brand (Fundación Everis, 2010, page 99) and restore the image of a trustworthy, reliable, and transparent country.

The great importance of cultural and sociopolitical contextsThere is a consistent penchant for blaming the current state of affairs on the actions of governments, preferably conservative ones, at the regional and local levels. However, this argument would not be enough to understand other key fundamentals of dynamics and processes with strong territorial impacts that took place in Spain during the period under discussion. The explanation must be sought in the social and political trap problem rather than

480 J Romero, F Jiménez, M Villoria

in any ideological hue. The processes took place in specifi c contexts in which unsustainable development proposals were socially legitimated by the majority.

Save for some minority voices, no one paid due attention to the devastation of cultural landscapes that symbolise the collective memory, the squandering of land, problems of supply or shortage of resources (especially water and energy), the diffi culties in collecting waste, the provision of public services, and the security problems associated with the urban sprawl. The institutional context that inspired the decisions is inseparable from the prevailing social and political traps.

This does not mean that the politicians should be allowed to get off scot-free. Given the present distribution of powers in Spain, the autonomous regions have exclusive jurisdiction over town and country planning (Romero, 2006). They have been largely responsible for putting forward and, where appropriate, enacting (or not) a legal framework geared towards greater territorial coherence to public policy.

However, generally, politicians merely used the rhetoric of governance and sustainable land management with no real desire to put it into practice (Jiménez and Villoria, 2011). During the decade of the greatest attack on land the highest number of plans, guidelines and strategies were published in Spain’s history, many of them technically and conceptually excellent, but very few were developed and implemented (Romero, 2009, pages 109–222). This is another great paradox of the Spanish example: never before have so many town and country planning strategies, guidelines, and regulations and so much public information and consultation served for so little. There was no majority in civil society demanding it. It is for this reason that so much importance has been attached here to social contexts, on the understanding that the contexts are much more important than the texts.

With its very complex formal institutions, the Spanish case is particularly interesting for showing how informal rules affect the working of formal ones and, thus, how important it is to go beyond a ‘checklist’ or ‘shopping-list’ strategy of collecting a set of formal institutions to build sound public policies. Our research shows that the principal-agent framework has to take into account that the national rules and regulations established to tackle the urban planning problem locally could have an implementation gap considering the prevailing informal rules. Following this reasoning, it is necessary to consider that in certain municipalities there will simply be no actors willing to monitor and punish illegal, partial, or corrupt behaviour (Persson et al, 2010). This is what Ostrom (1998) calls a second-order collective action dilemma, which postulates that rational actors are highly dependent on shared expectations about how other individuals will act, and—insofar as a large enough number of actors are expected to play foul—everyone has something to gain personally from acting corruptly. Or this is what Gambetta and Origgi (2009, pages 1 and 9) have called the low-quality exchanges equilibrium, where people do not resent low-quality exchanges, but seem to resent high-quality ones, and are inclined to ostracise and avoid dealing with agents who deliver high quality, because they develop a set of oblique social norms to sustain their preferred low-quality equilibrium: ‘I trust you not to keep your promises in full because I want to be free not to keep mine and not to feel bad about it.’ These theories are very useful to understand the importance of informal institutions historically transmitted and how they affect the low quality of government in certain European regions. The persistence of patrimonial clientelistic networks created in those regions with historically unconstrained rulers explains why certain informal rules impinge on formal laws and prevent the implementation of sound policies (Charron and Lapuente, 2011).

Representatives of the real-estate block took full advantage of the favourable economic situation and social and institutional context to consolidate a land-use model that has brought us to our current predicament. Neither they nor what they did were questioned by the majority,

(Un)sustainable territories 481

and nor were the authoritative voices in the profession and their representatives who also defended traditional town planning positions, supported by a technical discourse in which environmental impact was reduced to a mere administrative formality. Following Gambetta and Origgi’s (2009) suggestions on the low-quality equilibrium thesis, we could argue that, in many Spanish municipalities, a kind of tacit agreement was reached by mayors and citizens to maintain a double code of conduct towards urban planning. While all actors paid lip service to all formal norms and instruments of urban planning (municipal and other plans) and to their objectives regarding environmental protection and the sustainable development of towns, their actual behaviour was adjusted instead to a different tacit code: the ‘fl exible’ enforcement (or nonenforcement) of those norms. The reasons were different for various social groups: property developers and landowners had much to gain from that process; the population in general benefi ted from the increase in employment and in economic activity. Most of the costs were not immediately visible: the concreting over of the coastline and so many rural areas was evident only after the crucial decisions had already been taken, and the rampant increase in the prices of housing and land was at fi rst taken as an incentive for investment.

ConclusionsIn relation to land use, in recent years many European Union countries have shown a clear intention to bring in new forms of territorial governance (Governa et al, 2009). In different areas and in different spheres of government there is a patent determination to move towards new ways of understanding the land, to map out and evaluate policies, and to promote public participation. This has led to talk of the emergence of a new territorial culture, of space as a cultural and identity point of reference (place), of multifunctional use of land, and of “smart, sustainable and inclusive territories” (ESPON, 2010).

The case of Spain has been different, but wider sections of Spanish society now see with greater clarity the present and future economic, social, environmental, and political consequences of a decade of excess. Spain’s record in multilevel territorial governance is still modest in the European context. Aside from a few positive experiences, what generally prevails is poor practice, a lack of basic mechanisms for coordination and cooperation between political actors and between them and other economic and social stakeholders, and the limited development of citizen information and participation processes. This situation reveals how far the agenda for new forms of governing the territory and territorial governance remains absent from Spain and the extent of fragmentation and traditional views of managerial government. It is for this reason that the biggest problem is not legislative but rather sociopolitical (Romero, 2009, pages 223–260), something that is particularly signifi cant in the countries of central and southern Europe (ESPON, 2006; Farinós and Romero, 2007; Wassenhoven and Sapountzaki, 2009, pages 141–171).

Things can be done differently. It requires, fi rstly, the political will to foster land development that can combine history, culture, identity, productivity, and modernity. Spatial visions should really inspire and guide policies (Albrechts, 2009). Territorial governance has to be at the heart of the debate as a strategic political objective. In addition to emergency measures, the programme of work for the future with better guarantees and learning from past experience is extensive: (a) improving multilevel governance; (b) laying new and solid ground that make it possible to solve the real problems of poor competitiveness and low productivity in the Spanish economy; (c) handling the shift towards a new production model that will still have construction as a basic activity but will be less dependent on it, and in any case opts for what has been defi ned as Construction 2.0 (Pedreño et al, 2011); and (d) reforms that enhance the quality of democracy, transparency, the professionalisation of government (especially local and regional), and accountability mechanisms. Moreover, considering the path

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dependency of the informal rules of patronage and the partisan use of public administrations by local politicians while in offi ce, what is probably needed is a punctuated equilibrium process of change (Baumgartner and Jones, 1993), with sudden shifts in political priorities and social pressure to get round the political and social trap posed by the prevalence of the patrimonial clientelistic networks and institutional mistrust (Jiménez, 2011).

Increasingly, there have been positive trends in the last fi ve years: a more active position taken by large sectors of the academic and professional community in the public critique of unsustainable developments; a growing media attention to this kind of issue; an impressive and ever stronger civic movement as exemplifi ed by the 15-M movement; a more active role played by both legislators (the 2007 Land Law) and courts and prosecutors. Still, some other actors (property developers but also certain local and even regional authorities) regard the current crisis as just a hiatus in their strategies for short-run exploitation of land. The years to follow will see which one of these two possible outcomes prevails.

Acknowledgements. We wish to thank two anonymous reviewers and the journal editors for their very helpful comments. Also, F Jiménez and M Villoria should like to acknowledge the research grant received from the Spanish Ministry of Science and Innovation through the research project CSO2008-03663/CPOL.

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