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HOUSING MARKET DYNAMICS IN A PERIPHERAL REGION: THE ATLANTIC URBAN AXIS IN GALICIA (SPAIN), 2001-10.
Alejandro Lpez-Gonzlez University of Leon (Spain) alejandro.lopez@unileon.es and Maria-Jos Pieira-Mantin University of Santiago de Compostela (Spain) mariajose.pineira@usc.es Abstract. Spain has experienced a series of booms and slumps in the housing market since the 1970s. The latest boom in the first few years of this century has been followed by a major slump from 2007 that left a large number of unsold houses on the market, a depressed construction sector and debts in the banking sector, made worse by the world recessionary slump due to the general financial crisis. This study describes the background to the latest housing boom and its consequences, and focuses upon the detailed changes in the housing market in the five major towns in Galicia, one of Spains traditional slow growth peripheral regions. By reviewing the relationship between population growth and transactions volume, and tracing the evolution of housing starts, work licences and housing sales, the study reveals the dynamics of the housing market in the main towns of Galicia. This reveals that housing supply far outstripped demand from population growth, suggesting that speculative building, reduced planning restrictions and easier mortgage approvals exaggerated the boom-bust cycle. However, there are considerable variations between the major towns, demonstrating how local economies affected the dynamics of the local housing markets. Key words: Housing dynamics, boom-bust cycles, Galicia, neo-liberal changes, housing efficiency quotient.
Text, pp1-25. Text, incl. tables/maps is 7,161 words + Bibliography at 450 words. Abstract is 192 words.

1. Introduction
One of the characteristic features of the capitalist system is the presence of booms and slumps, which many authors, from Marx (1848 ) to Harvey (1989 ), have shown to be a product of the way that the various circuits of capital operate, a temporal sequencing that in some ways complements the spatial patterns of growth that create core and peripheral areas. The development of housing, part of the second circuit, is particularly prone to these booms and slumps. Like all circuits, investment in housing may be profitable at first but is eventually subject to the fundamental constraints of market saturation - because too many people are supplying too many goods for the available market - and debt, because the reduced returns from sales means that the debt incurred to invest in the enterprises cannot be covered, while some mortgage holders are unable to make their

2 payments. Unlike many other types of investment, especially in the creation of consumer goods, there are relatively few ways of avoiding these constraints in the housing sector within an area, such as moving production to cheaper offshore locations, or finding new markets for the goods. Moreover the high prices of houses and the length of time it takes to build houses, from securing land, obtaining permission to build, and actually building, then selling houses, makes housing more prone to speculative processes, which often result in an exaggeration of the boom-slump cycle. Despite a enormous literature on housing studies, relatively few works look at the detail of the housing booms and slumps in a set of towns in peripheral areas for most attention gets paid to the major growth areas. Hence this study fulfills a gap in the literature by investigating the detailed pattern of housing growth and decline in a traditionally slow growth area of Spain, the Autonomous Community of Galicia, and shows the mechanisms that have led to these changes. The study is divided into several sections, dealing initially with the context of the booms and slumps in the Spanish housing sector and the reasons for the latest boom. It then focuses on the particular features of the major urban centres in Galicia, before reviewing the characteristics of the housing stock in 2001 and showing the detailed changes that took place to 2010, in which rather different boomslump patterns were displayed by the individual towns.

2. The Spanish Context

Spain, along with many other countries in the western world, has experienced a series of housing booms and slumps in the last forty years. After the relative stagnation of the Franco years the advent of democracy and then a liberalization of the economy (Burriel, 2008) in the early 1970s led to a construction boom. An annual average of 345 thousand houses were built in the 1970-74 period as a response to the new industrial and tourist growth and the need to house the rural surplus who moved to urban areas. Although Spain as a whole subsequently followed the rest of the western economies into a period of stagnation, by the late 1980s another real estate boom occurred, although with lower numbers, with an annual average of 245 thousand houses being built in 1986-91. Despite the

3 subsequent decline, another boom followed less than a decade later, with 5.5 million housing units constructed between 1997 and 2006. Indeed, during the last phase of this period, an annual average of almost 667 thousand new houses were built, which is almost double the rate of the 1970s boom and close to triple the rate of the late 1980s growth. But this has been followed by a spectacular collapse. For by 2010 the number of houses built annually collapsed to just over 63 thousand (Ministry of Public Works, 2010a) - a 90% decline in relation to 2007 - while there also 687.5 thousand new unsold houses on the market in the same year, a third of which were built as holiday houses in coastal tourist areas. This has led to major decreases in the prices of houses in an attempt to sell off the stock and massive unemployment in the formerly booming construction sector. Such a large unsold inventory created a huge problem for builders who have been unable to pay their bills and bank debts that helped finance construction, and if taken over by banks as payment for debt represent toxic assets since the prices of the houses have also collapsed. These changes are part of the economic decline in the western world given the crisis in the world financial sector since 2008, which has led to reduced employment in most economic sectors, and major debt problems for governments who have reacted by austerity measures, such as cutting public sector employment and social benefits, and increasing taxes, all of which have reduced consumer purchasing power., which has also led many to be unable to pay their mortages. The external change has had particular problems for the Spanish housing market, since a significant part of the demand for houses has come from tourists or migrants from other European countries in particular seeking houses in a warm climate. Indeed at the height of the boom in 2007 no less than 17% of housing sales were by British buyers. Yet it can be argued that the recent housing construction in Spain was always too large, for the average annual rate of building 13.3 new houses for every 1,000 inhabitants over the past decade, was far higher than the average registered in other parts of Europe (5-7 houses per 1,000 population) (Burriel 2008). This comparison implies that too much building has taken place, presumably because of the speculative nature of the construction and real estate sectors in Spain. Given its tourist tradition that led to many houses being built to house holiday makers and

4 new migrants, the Mediterranean coast has been hardest hit by the housing bubble, which has especially affected the many second homes in the region. However, other regions not dominated by tourism also saw increases in the volume of housing in the first few years of the twenty first century, even in situations in which the population has barely grown. This means the construction boom has not been demand-driven, but has been dependent on speculative processes, which has led to a significant over- accumulation of housing stock. This study looks at the characteristics of the boom and slump in one of Spains peripheral and traditionally slow growth regions, the Autonomous Community of Galicia, which is divided into four provinces - Corua, Lugo, Ourense, Pontevedra. It contained 2.697 million inhabitants in 2001, but only grew only slightly to 2.798 million in 2010. The study focuses upon the housing dynamics of the five principal urban centres of the region that contain 28.4% of its population but 42% when their hinterland population is included. Indeed, most of the cities experienced an overbuilding of houses after 2001 that did not seem justified by their population size and growth, although it will be shown that each centre had rather different patterns of change. This illustrates that the fact that although the boom and then the slump mainly affected the main growth areas of Spain, even peripheral slow growth regions like Galicia experienced parallel trends.

3. Reasons for the Boom.

The booms in housing growth in both Spain and in Galicia were helped by four main factors, related to demand, new societal conditions, planning failures and the removal of old spatial constraints in movement.. In the case of demand there were increases in the desire for: single households (Gonzlez Rodrguez, 2008); secondary residences, used during the weekends or holiday periods; and new houses in tourist areas - both for temporary and permanent migrants. The demand from many foreigners who wanted to buy permanent or secondary residence in Spain - attracted by the quality of life and the climate - was an important external stimulus to the housing sector, helped by the

5 increasing prosperity in many parts of Western Europe from the early 1990s. Moreover, Spanish groups, such as the Tourist Real Estate Developers, actively encouraged the investment of foreign tourists in buying houses. Indeed, in 2003 the World Tourism Organization estimated that in the next five years, between 800,000 and 1,700,000 European families would explore the possibility of buying a second house in Spain. This type of projection meant that the 43,197,684 inhabitants that Spain registered in 2003 could have been increased by at least 2% if those families actually moved. However, demand alone was not the only factor that underlay the boom years. It was also fuelled by new societal conditions dominated by the application of neo-liberal ideas which reduced regulation and placed market considerations above other values (Smith, 2004). Housing was seen as a major vehicle of capital accumulation which seemed to have positive effects in generating employment in construction, finance and sales, creating new tax revenues, and propelling tourist activity. One important consequence of the decline in regulations was that financial institutions borrowed more money and became far freer in mortgage lending than in the past, when borrowers needed greater assets, or better incomes, to obtain a mortgage. In addition, the healthy economic situation of the country in the early 2000s and low interest rates, also encouraged the purchase of apartments by more people than in previous decades. The result of all these trends meant that mortgage loans, which reached a total of 100,000 million euros in 1997 (Ministry of Public Works, 2010b), increased six fold in the next decade. Indeed, the housing sector was seen by many as the ideal route to prosper, especially when a developer had a monopoly situation in a new housing area and was able to build thousands of houses. Moreover there was a concentration in the housing market as increasing numbers of financial institutions bought large amounts of the building land areas that were made available through relaxation in planning rules - as speculative ventures. They subsequently sold the land at inflated prices to builders, who then benefited from a policy of easier and larger mortgages for house buyers, which meant that inflated prices were generated in the system at every stage. The new societal conditions that lubricated the housing boom were also associated with by

6 the failure of the planning system to manage growth effectively. Planning in Spain is controlled by the System of Land and Urban Arrangement - the Territorial Plans promoted by the Autonomous Regions - and by the General Plans of Municipal Distribution developed by every municipality. Although planning is supposed to defend the public interest, it has proved to be ineffective in the past two decades especially, given the pressures exerted by the booming real estate and construction industry, which dominated decision-making by stressing the growth benefits they brought to many areas. Their dominance was different from the situation in previous development phases when the public administrations exerted greater control over the urban growth processes and were more restrictive in granting planning approval. The result has been that the entire space of some areas have been designated as available for building, except those places under special legislation, such as coasts or protected heritage sites. But even these areas have not always been respected. In addition, the growth in available building land in Galicia was increased by a new land classification category called rural building land, which massively increased the area that could be developed for housing. The effect of this reduction in planning regulations can be seen in most parts of Galicia, but especially in coastal areas. Indeed, it was estimated in 2007 that around 800,000 new homes (Greenpeace, 2010) could be built in these newly classified developable lands. Among the most affected municipalities from this potential housing boom were Foz, Ribadeo and Barreiros, in the northeast of Galicia. In Barreiros 1,327 of the 2,797 houses in the area were second homes. The extent of this extreme granting of permission to build can be seen by the fact that during the last ten years the Barreiros council have given licenses for 6,000 homes to be built, although the municipality actually lost 283 inhabitants in the period. Indeed in many areas of population loss the local mayors continue to advocate new home development. Apart from the relaxation in general planning regulations, there has also been a proliferation of local town-planning agreements with the increasingly powerful private sector, in which municipalities promised to approve proposed developments in exchange for various compensations, such as in other jobs, constructions or money. However, it must be stressed that the relaxation of the

7 previous rigid rules and new procedures were often popular in many areas where land owners could benefit. This was especially the case in areas of decreasing agrarian incomes, because the easier development approval led to farmers and owners selling their land, getting what amounted to what is often described as one last cash crop from the land, which in rural terms would only have been of low value. During all these changes in planning procedures it is necessary to emphasize that few citizens have taken part in the planning of cities and the development decisions that created new urbanized spaces. There are few opportunities in Spain for citizen involvement in the planning process, and complaints about planning decisions are rarely overturned. At the same time that these changes in demand, societal conditions and planning regulations were taking place, a fourth factor encouraging the boom came from the emergence of new territorial logics, especially since the late 1980s. Major new developments in infrastructure, transport, information technologies and communication, removed many of the old barriers to movement in Spain and Galicia and made decentralization easier. People found it easier to move from the congestion and high prices of the towns and cities, towards suburban belts to establish their principal or secondary residences. Locations in attractive natural environments and in small traditional centres also became popular and the new spatial ability lubricated by increasing car ownership made it more possible for more people to fulfill these desires. The combination of these four main factors helped the boom in housing, but this growth proved to be a bubble that has been unsustainable. The financial collapse in the world banking system in 2008 proved the final blow that led to the end of the boom. The result has been that: many new houses and apartments built in the boom period cannot be sold, so few new houses are being built only 4,072 were built in Galicia 2010 compared to 35,749 at the height of boom in 2005. In addition, a major decrease in housing and land prices has occurred and many people are unable to pay their mortgages. Increasingly, high unemployment rates are found (reaching over 25% in 2012), especially in those sectors linked to the previous housing boom. In addition, many financial institutions have collapsed, or have been bailed out by government, and governments have higher

8 debts that are leading them to drastically cut government services. However, these issues go beyond the focus of this discussion which is to focus upon the detailed temporal changes in the housing sector in Galicia from 2001-10.

4. The Galician Atlantic Urban Axis and Housing Market Evolution

Figure 1: Unsold Houses in Spain in 2010: Percentage of Total by Region.

Source: Ministry of Public Works (2010).

Galicia is one of the traditional slow growth peripheral areas in Spain. So it might have been expected that the region would not have experienced the same intense boom-slump situation found in other parts of the country, since the demand for houses from a slow growth population would be relatively low. But Figure 1 which shows the proportion of the national total of unsold houses in each region reveals that Galicia has not escaped from the housing and real estate bubble that affected the entire Spanish state. The Ministry of Public Works reported that 687,523 new houses had not been sold in Spain in 2010 and Galicia had 5.71% of the aforementioned stock of unsold houses. This confirms that Galicia, like other Spanish regions, experienced overbuilding. Indeed

9 Figure 1 shows that this was at the same level as some regions dominated by tourism and recent population growth, such as the Canary Islands or Murcia, but is certainly not as high as most regions on the Mediterranean coast where rates of 15-19% unsold houses are common, and where the collapse of real estate boom has left a deep, depressive mark on the territory.

Figure 2: Population Growth and Housing Transactions in Galician Municipalities: 2004-10.

Source: Calculations by authors Within Galicia the effect of the housing boom and slump is spatially concentrated, and parallels the pattern of population change. Figure 2 shows that most of the rural areas in Galicia, except on the coast, have experienced declines in population between 2004-10, as seen by the unshaded areas.

10 Apart from a few cases such as Ourense and Lugo in the interior and some coastal places, the only growth in population between 2004-2010 occured in a belt of urban places usually referred to as the Atlantic Urban Axis, running from approximately north to south, dominated by the cities of Ferrol, A Corua, Santiago, Pontevedra and Vigo. Figure 2 also shows that these centres and their surrounding areas also experienced the majority of housing sales or transactions during that period as seen by the size of the circles denoting number of housing transactions in the period.

Figure 3: The Atlantic Urban Axis of Spain

Figure 3 provides a diagrammatic summary of the way in which Galicia is dominated by a zone of major cities characterized by a concentration of economic activities and population in the west, with peripheral areas to the east where the general trend is a process of abandonment, aging

11 and economic sluggishness. This western fringe, also known as Urban Atlantic Axis, contains the leading companies, institutions and office centers of the four provinces within Galicia; as well as its main ports and airports. By contrast, the eastern Galician provinces of Lugo and Ourense are mainly characterized by a demographic and economic decline, although some municipalities and provincial capitals within this region maintain some dynamism. Although the Urban Atlantic Axis occupies only 7,000 of the 30,000 square kilometers of the province, its major centres account for a third of the population and the majority of the businesses, although Figure 3 shows that there are some minor extensions along some of the major routeways to the east. This axial pattern is a result of the very different urbanization forces that originally created these five centres on such dispersed sites, initially the pilgrimage centre in Santiago, fishing in Corua and Vigo, naval and military activity in Ferrol, tourism in Pontevedra, although all centres have expanded their economic base since their origin. Within this core area of Galicia the largest centre is Vigo, with 297,124 inhabitants but which rises to 445,682 people if the population within its area of influence is also included. Vigo is the quintessential main industrial city of Galicia with many manufacturing activities (including a major Citren factory) and a port that is one of the most important fishing centres of Spain. A Corua has 246,047 inhabitants and 538,037 people in its area of influence. Corua has an emphasis in the tertiary sector, as result of its status as an administrative center and the importance of trade. This city also has an important port, a large secondary sector and diversified base SMEs, as well as host of industries very significant in Galicia, such Repsol, the major oil company and Inditex, a leading textile company that developed the Zara brand that has been successful throughout Europe. The next largest cities are Santiago de Compostela (94,824 residents) and Pontevedra (81,981 inhabitants) with 155,061 and 117,628 respectively if their hinterland population is included. Santiago de Compostela is known for its cultural, university, tourism and health functions and it is the seat of the regional government, circumstances that explain the dynamism that the city has had in recent decades. The urban functions of Pontevedra are linked to its tourist and tertiary sectors, although it also possesses an important concentration of

12 construction companies that pushed the urban development of the city and nearby municipalities. Ferrol is the smallest of the five centres. The city was traditionally oriented towards maritime activities through its commercial and fishing port, civil shipyards and military installations. Since the eighties, the naval construction sector in particular has suffered an industrial restructuring and decline. This determined the gradual loss of Ferrols former economical and demographic dynamism, which meant that the centre now only has 73,638 inhabitants, although this does rise to 214,287 people when its trade area is included. The connection of the town to a new major motorway in 2000 led to the hope that it would improve its business opportunities. However, the current situation is still very serious, with nearly 19,000 unemployed and a shipbuilding industry whose future depends on the achievement of new orders for large ships. These characteristics in location and economy means that the main Galician cities form a type of dispersed core of urbanization in the region, instead of the more typical concentration in one main regional core.

5. Characteristics of the Housing Stock in the Urban Axis, 2001

Until recently, the available information about the housing market suffered from large deficiencies, making it difficult to monitor the changes in this dynamic and important sector of the Spanish economy and society (Garca Montalvo, 2001 and 2007; Palacios Garca, 2008; Vinuesa Angulo, J, 2008). In the study of housing activity two basic variables are usually used: prices and quantities of housing units. It has proved to be difficult to obtain precise figures for the former because of the confluence of the use values and market values in this type of property - the former determined by its natural conditions and the latter, which depend on the market - as well as the speculative processes which create price fluctuations (vid. Cuadrado Roura, J. R., 2011: Garca Montalvo, J, 2007 and 2009; Garriga, C., 2010; Vergs, R., 2009). By contrast, the variable quantity of houses is less controversial and more easily comparable, and is used in this study. So the information used is based on four sets of data: the 2001 Housing Census, the annual Work Project Notifications (from the Spanish Architects School); the annual Work Authorization Licences (Galician Institute of

13 Statistics); and new Housing Transactions (Ministry of Public Works). The information derived from these sources made it possible to trace the number and types of houses, and their relation to the population in each of different areas, as seen in Table 1. Table 1: Characteristics of the housing stock in 2001
Urban Area Principal Housing units 136,495 54,300 40,131 43,451 146,593 442,120 % 71.68 71.87 63.88 65.95 74.41 71.21 Secondary Housing % units 21,876 11.49 7,035 6,732 10,880 21,529 71,370 9.31 10.72 16.51 10.93 11.50 Empty Housing units 32,039 14,218 15,964 11,552 28,884 107,342 % 16.83 18.82 25.41 17.53 14.66 17.29 Total Houses 190,.410 75,553 62,827 65,883 197,006 620,832 Houses/ 1,000 inh 492.68 491.56 476.52 478.05 427.08 488.66

Corua, A Ferrol Pontevedra Santiago Vigo Total axis

Source: National Institute of Statistics, Housing Census (2001).

Table 1 shows that the housing stock in the five urban areas studied reached 620,832 units in 2001, most of which (71.21%) were the principal residences of householders. However there was a surprisingly high proportion of empty houses in the five centres as a whole (17.29%). The housing character of the five centres can be summarized in terms of three types. First, the urban areas in the north, A Corua and Ferrol, are the most similar to the average values and also have the most compact housing developments in terms of houses per population. Second, Pontevedra and Santiago are located in an intermediate position, although below the average rate. In these centres the proportion of the principal housing is much lower than the average values. In the case of Pontevedra it is due to the large stock of empty houses (many of them used for the summer rentals in tourist nuclei such as Sanxenxo), while Santiago as a university town which has many students renting property during term time. Santiago also has more units as secondary houses and an average number of empty houses. Third, Vigo has the smallest ratio of housing units to population. This is a function of a lower population growth rate and its domination by principal residences, which results in few empty houses in 2001 and a below average percentage of secondary housing. These 2001 characteristics led to several hypotheses about the probable changes likely to occur in the next decade.

14 i) It might be expected that the growth in the housing stock in any city would be directly related to the growth in population, except perhaps in areas that were likely to be tourist centres where secondary housing units may be constructed. ii) It seemed likely that areas with more empty houses would show lower rates of housing growth given the competition that realtors would face in trying to sell new houses when there was already a glut on the market. iii) Normal growth rates of housing growth were hypothesized in A Corua and Ferrol, especially the later, given the probable demand for houses as a result of their relative demographic growth. iv) In Pontevedra and Santiago de Compostela the low housing/population ratios should lead to higher construction rates, although the high numbers of empty houses in the former case might reduce this rate in Pontevedra. v) The low housing-population ratio combined with fewer empty houses in Vigo would imply that greater housing growth would occur in this town, especially as it is also the largest centre with many different economic activities. The absence of precise data on the changes in housing during the 2000s did make it difficult to trace the trends in detail. Nevertheless, it proved possible to calculate a reasonable estimate of the increase of net housing from the difference between the new work licenses and those of demolitions, which can be related to the total housing numbers shown in the census (Table 2), the latest available at the time of the research. This information was compared to several other indicators that seem related to changes in the housing stock. The first is with the net change of the housing developments, the relative change of the population, and of the population group aged 20 to 34 expressed in percentages, since this group has the most propensity to acquire housing (vid. Garca Montalvo, 2001; Redondo Lpez and Lpez Penabad, 2001). The second is by the quotient between new net housings and the absolute change of the population.

Table 2: Estimate of housing stock in 2010 and changes since 2001.

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Housing Stock 2010 Corua, A Ferrol Pontevedra Santiago Vigo Total Axis 220,861 88,639 73,022 79,777 222,485 714,064 Houses/ 1,000 inh % Variation in number of houses (2001-2010) + 16.40 + 17.66 + 16.43 + 21.28 + 13.14 + 15.27 % Variation in population (2001-2010) + 7.96 + 1.42 + 6.09 + 10.59 + 5.57 + 6.39 % Variation in population between 20 and 34 years (2001-2010) -2.53 -2.57 -2.33 -0.30 -2.41 -2.23 New houses/new inhabitants + 0.99 + 5.99 + 1.27 + 0.95 + 1.00 + 1.15

521.13 572.94 518.24 517.78 454.36 523.83

Source: calculations by authors.

A comparison between Tables 1 and 2 shows that the number of houses in the five centres increased by almost 94 thousand units between 2001 and 2010, an increase of over 15% (column 4), with an increase in the ratio of the number of houses per 1,000 population from almost 489 to just over 523. Yet few of the expectations outlined above were fulfilled i) The first hypothesis was not fulfilled. Table 2 shows that the growth of houses was independent from the population increase. Column 4 shows that the 15.27% increase in the housing growth was more than twice as high as the population increase (6.39%) for the five centres. Yet this occurred despite the fact that Column 6 shows that the population group that would be most inclined to buy housing declined in absolute terms (-2.23%) in Galicia during 2004-2010, which would reduce demand. This means that the housing market is determined by variables other than the demand from increasing population growth. ii) The hypothesis that housing increases would be lower in areas with high numbers of empty houses was also rejected. It was also shown that the third expectation that the cities in the north, A Corua and Ferrol, should have normal rates of housing growth was not fulfilled. Indeed, they increased their housing stock in spite of having many empty houses. The incongruity is serious in Ferrol. Despite its persistent socio-economic crisis, with high unemployment, more houses (17.6%) were built than its almost stagnant population (only a 1.4% growth) could expect to absorb, especially given the high empty house ratio of 18.8% in 2001. This increase in housing numbers led to Ferrol having the highest ratio of housing/1,000 inhabitants (572.94) in 2010 , with almost six new houses for every new inhabitant added to the housing stock (column 7).

16 iii) The expected higher construction rate in Santiago de Compostela because of low housing/population rates in 2001 was confirmed, for Table 2 shows it displayed higher housing and population growth. By contrast, Pontevedra only showed average rates of housing and population growth perhaps because of the high levels of empty houses in 2001. iv) Despite its lowest starting position in the housing/population ratio in 2001, Vigo did not increase its houses at a high rate as expected over the decade. Indeed, it still showed by far the lowest number of houses per 1,000 inhabitants (454.36) of the five centres.

6. The dynamism of the urban areas in the Atlantic Axis

The evidence of the boom and subsequent burst of the huge real estate bubble in Galicia led to the decision to make a more complete annual analysis of the trajectory of the housing markets in each centre throughout the first decade of the twenty-first century. Figure 4 shows the results of this analysis, in each of the five centres over the decade, although sales and transactions could only be calculated accurately since 2004. The temporal patterns of the three housing variables for each city reveal very different levels of amplitude for housing starts and sales from 2001-10. Four main features can be identified. i) The combined trend lines for all five centres that comprise the Atlantic Urban Axis shows a general pattern of a growth in housing starts to 2005 followed by a decline. The sales figures show the same trend of boom then slump, but delayed by a year. There is also an increasing gap between sales and the much lower figures for housing starts in the last part of the decade. Since the sales figures measure all transactions, not just new houses, it can be expected that the number of sales will be higher than housing starts since sales are a result of people moving, establishing a household for themselves or their family, or giving the residence up. But it is worth emphasizing that the end of the a boom and then beginning of a slump in housing starts and sales started in Galicia more than a year before the general financial collapse in the western economy, which was also associated with major declines in house construction, sales and prices.

17

Figure 4: Evolution of housing starts, work licenses and housing transactions.

Source: Calculations by authors, based on data from the College of Architects of Galicia, Galician Institute of Statistics and Ministry of Public Works. (Base year = 2001, so a value of 120 by 2010 means that the variable has grown by 20% ).

ii) Figure 4 shows that the trend lines in each of the five individual centres were far from identical,

18 illustrating that each centre had their own specific dynamics within the overall pattern of boomslump. Many of the towns show different annual fluctuations in the start and sales figures. Vigo is perhaps the least complex, although it is worth noting that its housing starts peaked in 2004, a year earlier than the trend for the whole Atlantic axis, with its sales decline beginning two years later in 2006. Although Vigo recorded speculative processes, they were not as strong as they were in Corua, for example, probably a result of the fact that Vigo is the biggest city in Galicia, with a mixed economy which makes it less prone to local fluctuations. By contrast, Santiago displays a relatively even trend of housing starts, without the boom-slump pattern. However its sales figures show a great fluctuation, rapidly growing to a peak in 2006 then declining equally quickly. This is a result of the more stable employment pattern in its university and government-based economy and the fact that many people bought apartments in the city as an investment, especially those who had spent some time working in other countries, creating a higher speculative element in the housing sector. A Corua and Ferrol both had their peak in housing starts in 2005, but the former experienced a decline in sales staring two years later in 2007. Ferrol, the smaller node, had a relatively even trend of sales figures, but well below the ratio in A Corua, and with a decline from 2007 when sales were higher than the slump in housing starts. Pontevedra had a peak in housing starts in 2006, but sales were relatively stable - probably a function of the continued buoyancy of the tourist industry - until they declined rapidly from 2009 as the economic depression engulfed Spain. The dynamics of the housing market was further explored by calculating a value which measures the efficiency of the housing market. This is a quotient derived by dividing the housing sales by the work licenses granted two years previously, the differences in dates being an estimate of the normal time taken to construct a house.:
T E jt T jt L jt 2

(4)

So TE is the efficiency rate for an urban area j and a time t, with T being the housing

19 transactions during the current year and L the work licenses conceded two years ago. In the case of values between 0 and 1 the demand for houses is not capable of absorbing the supply of housing units (since the supply is bigger than the demand) measured by work licenses, while the values over 1 show that the demand for housing units is bigger than the supply. The results are always higher than 0, and reach a situation of equilibrium when licenses equal sales, namely when the efficiency rate is equal to 1. The efficiency of real estate development in the Atlantic Urban Axis has been characterized by the continuous accumulation of surplus housing because housing starts were greater than sales. Figure 5 shows that the number of houses sold between 2004 and 2009 for the five urban areas that comprise the Galician Urban Axis were always less than those built, as seen in efficiency figures between 0.6 and 0.8. But in 2010, a depressed construction sector did not build many new houses and sales. Indeed, sales, although still historically low, almost caught up with new housing to create an efficiency rating close to 1.0. Previously the highest levels of the efficiency ratio were 2005 and 2006, at the height of the boom in housing starts and with many sales, whereas in 2008 and 2009 the number of sales hardly made up two-thirds of the number of finished houses. Figure 5: Changes in the housing efficiency rate in Galician urban areas

Source: Calculations by authors These general trends conceal many variations by the individual cities. The centres that

20 maintained a higher grade of efficiency, with a balance between starts and sales, were Pontevedra and Santiago de Compostela, for both had the highest number of years with rates higher and near to one. On the other hand, Corua and Vigo accumulated large housing stocks in most years in the period, shown by low efficiency values in the 0.5 to 0.8 range, apart from the exceptional year 2010 when the value was over 1.0, implying that sales had caught up with supply. Ferrol is a different case. It has already been noted that the urban area has shown a persistent incongruity, given the dynamic real estate activity with many housing starts in a centre that has been in marked socioeconomic crisis. Although the housing efficiency quotient for Ferrol was well over 1.0 in 2004, which implies more sales than construction, it has declined drastically since and between 2007 and 2009 the efficiency quotients of around 0.5 show that the number of sales was only half of the houses being constructed. Pontevedra also shows efficiency rates over 1.0 in 2005-6, but with values just below 1.0 in subsequent years showing a relative balance in starts/sales. Santiago, which had little fluctuation in housing starts, had an efficiency value of over 1.0 in 2005. It was close to this level in subsequent years but showed a gradual drop in its efficiency quotient, reaching low levels in 2010, meaning that there were far fewer housing sales than supply.

7. Conclusions
The Autonomous Community of Galicia has long been a slow growth region on the periphery of Spain. But its general rural decline has been balanced by growth in its five large urban areas which can be characterized as a dispersed linear Atlantic Urban Axis in the west of the region. The result has been to create a dispersed core of growth within this otherwise declining peripheral region. Although the five centres are very different in their history and economies, all took part in a general Spanish boom, then slump in the construction and subsequent sales of houses in the first decade of the twenty first century. This confirms that the general trends in Spain were also found in this peripheral, slow growth region. However, the timing of the collapse of the boom in Galicia is interesting, for it preceded the housing slump and the general financial crisis in the western world

21 which has led to unprecedented levels of unemployment in Spain in recent years. This suggests that peripheral regions may see the beginning of the slump before other more prosperous areas of a nation state. However it is also important to note there were strong local elements within this general trend in Galicia. The five centres that comprise the main urban axis displayed very different patterns within the boom-bust cycle that in many ways are reflections of their very different economic bases. In some cities (A Corua, Pontevedra, Santiago de Compostela), the real estate market has been extremely dynamic, strengthening the economic importance of these centres throughout this decade. The two other centres have taken different paths and with varying consequences. Despite the long-term economic crisis of Ferrol, increasing numbers of houses were built in the last fifteen years, leaving in its wake a large stock of unwanted housing. Vigo, the biggest city in Galicia, and the one most apparently in need of new housing, had the lowest dynamism in residential construction: it did not experience major additions to its housing stock and also experienced the beginning of the housing slump at an earlier time than the other centres. What does seem apparent in all these cities is that the growth in new housing units far exceeded any major increase in housing demand from a growth of their populations. In addition, the housing starts occurred well in advance of sales, suggesting that there was a strong element of speculation in the process. This was almost certainly a consequence of the spread of neo-liberal ideas to Galicia which led to a reduction in regulations, both in the granting of mortgages and in the planning process. This allowed developers much greater freedom to build houses. They took advantage of this reduction in regulation to build more houses until sales did not keep up with the supply of new houses being created. People were unable to afford the easier mortgages because of the general financial collapse that created such high unemployment levels. So it can be argued that this decline in regulatory activity - especially by the planning offices - helped create, or at least amplify, the boom and slump in Galicia and have ignored previous evidence of such boom-bust cycles, which end in market saturation and debt. It is worth noting that these changes in the housing market in Galicia were in complete

22 contrast to the advice being provided at the time from the European Commission (1999). It was issuing guidelines to help create more sustainable urban growth patterns that operate in the public interest. The commission suggested that new formulas of governing should be developed to provide cities with the best conditions to achieve "success" in the new competitive, hierarchical world urban network. To attain this state, new principles of governance should be created, namely: economic and social cohesion - which allows public action to solve the imbalances between territories; balanced competitiveness between the territories, in the face of the new challenges that increasing competition imposes; sustainability - not only environmental, but also in economic and social terms - to modify the current patterns of the human activity; and subsidiarity, that allocates management to the level nearest the citizen (Ortega, 2001). Also it was considered fundamental that this new form of urban government encourages the cooperation and participation of all the agents and this means including all the citizens in the process which has not traditionally been the case in Spain. Such policies are designed to create a more integrated vision of city planning, one which would be intimately linked to other sectors of politics, such as those dealing with the environment, economy, infrastructures, as well as natural and cultural resources management. Unfortunately, the advice to adopt a careful, sustainable planning system to create harmonious growth and the protection of natural and scenic areas has taken a back seat to the dominance of developers and speculation in Galicia, with the result that these sustainable values were relegated to a second level of significance. One hopes that Galicia, and Spain in general, will take this European planning advice into account in its future recovery from the disastrous boom and slump in its housing sectors. At present there are few signs of the development of an integrated sustainable approach, although individual initiatives are being developed to counteract the current problem. One recent suggestion has been to boost foreign investment in housing, especially from British, Chinese and Russian markets, where demand for Spanish properties has continued to grow while northern European demand has waned. Indeed, in 2012 Spain promised residency for foreigners who invested in properties with a minimum value of 160,000 euros (130,000). It is too soon to see if this policy is successful in

23 increasing demand for the many unsold properties created during the recent housing boom.

Acknowledgement. This research has been financed by the Spanish National Plan for Research and Development: Reference CS02010-16298.

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Appendix A. Sources of Data. (CommentNot really necessary. Let Dan decide if he has room for this part i). 2001 Housing Census. This provided the principal source to obtain the initial number of houses as well as distinguishing between principal and non-principal residences (secondary and empty). ii) The work project notification. This measures the number of new housing projects planned, but before administrative authorization or a work license is granted. It is published annually by the Spanish Architects School as part of a regular project to monitor the veracity of the identity, and authorization as architect of a work project. iii) The work license. This is an administrative document by which the builder obtains authorization to build from the local government administration. The Galician Institute of Statistics publishes this information annually by collating the information from surveys carried out by the Galician municipalities. iv) New housing transactions. This quarterly series began in 2004, and gathers information on the numbers of registered housing that were given a deed the official document that must be signed when a housing unit is bought and acquired from the housing developers. The information is compiled by the Ministry of Public Works, originally in the Notaries' Schools.

.End of article, pp.1-25.