The True Costs Of Gallardón's Folly

It's time to unite the threads of two issues that I have posted about before on several occasions; Madrid's appalling pollution problems and the mega project to bury the M-30 ring road that has become the defining act of Alberto Ruiz Gallardón during his time as Mayor of the city. On the pollution issue a report in El País this week more or less confirmed what we already knew - Madrid continues to exceed the legally permitted maximum levels of emissions of nitrogen dioxide with all the effects this has for the health of the city's residents.

The overshoot of the contamination limits comes despite the city administration having had what they obviously thought was a very clever plan to sort out the problem; that of moving the measuring machines from zones with high readings to ones with much lower measurements like the Casa de Campo. This fraudulent trick did have the effect of achieving what looks like quite an impressive reduction in emissions between 2009 and 2010, but was still not enough to bring the city within the limits. The result is that the official figures are a significant underestimate of the real situation.

The difference now is that the maximum limit has changed from being a recommendation to being a European requirement. So does Madrid have a new master plan to make the city safer for those who breathe the air? It does indeed, the master plan is to ask for a moratorium in the application of the new legislation. Not because Madrid's rulers need more time for their extensive traffic reduction plans to take effect, they don't have any. The failure of the machine moving ploy to deliver the goods effectively leaves them with no ideas on complying with the law, so we are left with what will be a series of delaying tactics.

Which brings us to the M-30. I was walking down by the river last Sunday in the relatively warm sunshine we had a week ago. It was very pleasant to walk along the now pedestrianised banks of the river Manzanares. However, any idea that by burying the ring road the city has also managed to bury the problem of traffic pollution was soon dispelled by the sight of a familiar haze in the distance. It's important to remember that what many choose to see as an environmental project was in reality a road widening scheme, and a characteristic feature of new or wider roads is that they encourage yet more drivers to take their cars out.

People were not just walking or cycling by the river last Sunday. Men were working there too, planting regimented ranks of anaemic looking trees to replace some of the healthy adult specimens that were chopped down years ago at the beginning of the vast project. People working at weekends on municipal projects is a sure sign of impending elections, and there will undoubtedly be intense pressure for everything to be left at least superficially finished in time for Gallardón to run his re-election campaign in May.

What many voters may not be aware of is that the 'environmental' part of the project has been largely paid for by the national government, through the much maligned Plan E and its successor. It's unlikely that Gallardón will want to remind anyone of this at election time, but his administration has been effectively bankrupted by the crisis and the huge debt left over from the road-widening and pollution increasing part of the project.

Don't get me wrong, I think it's good that the river is a place where can people can walk or cycle without roaring traffic. I just take issue with those who regard this project as some great visionary work. "Visionary" would have been deciding that Madrid would benefit from not having a multi-lane ring road running through the interior of the city, and a fraction of the huge cost of the project could have been much more usefully spent on traffic reduction and diversion. Oh, and as a side effect it might just have been possible for Madrid to comply with pollution laws.

Instead we got more traffic, more contamination and a debt that will reduce the level of public services offered in the city for a generation. We are already seeing the start of the big sell off, as properties that were acquired with the intention of providing social facilities in areas that don't have them are instead being put up for sale. This after the city has spent a fortune on keeping them empty for years whilst the money got spent on the big road. Cuts will take place in all kinds of services over the next few years, as the city pleads with Brussels that it hasn't been given time to come up with any ideas to keep its citizens healthy.

Before You Leave The Crisis Make Sure You Pay Your Toll

For some it doesn't seem to matter how bad the crisis gets, they always land on their feet. The banks, of course, are the shining example of this philosophy that says profits must be privatised for the benefit of the (very) few whilst all losses get picked up by society as a whole. Other companies have clearly learnt the lesson of this, the latest example being those that have the concessions to run toll roads in Spain.

These companies probably thought they were onto a guaranteed winner with their concessions, but it appears that not enough motorists are paying the tolls to compensate for a change to the law on compensation for expropriated land that was introduced by Aznar's government. This change meant that landowners had to be compensated based on possible future changes in the value of their land rather than just the value at the time of expropriation. I would hate to speculate on the possibility that any wealthy PP supporters benefited enormously from this, so let's knock that idea firmly on the head.

Sadly it seems to have been a law based on the assumption of a never ending bubble for all involved, but don't worry because it will be those most affected by the cutbacks in government spending who may well get to pick up a tab estimated at €800 million. It doesn't matter that the major shareholders of these companies are the same construction companies who did fabulously well out of the boom years, the companies concerned are now - to use a phrase popularised by a prominent Madrid politician - "pobre de pedir". I'm sure those who have had their pensions frozen this year will understand that there are needs much greater than those of the retired.

A Pharaoh Without Phunds Is No Phun

We were still in the times of Vak Asflak As. The people were ever more miserable and there was much complaining throughout the land as the few who still had work found their salaries had been reduced. The Pharaoh Gayadonn wandered the empty corridors of his vast Tel E Kom palace and post office. He was bored and restless. He walked into the office of his faithful adviser Ko Bo and announced "I need to get out of here, this place is driving me crazy."

Ko Bo though for a moment and then suggested "Let us go down to the oasis and listen to the roar of the great Manzanares. Much work has been done and all should be green and splendid." "Oh, is it finished then?", said Gayadonn, "So soon before the elections?" It was not finished of course, but Ko Bo though better of mentioning this and off they went down towards the river.

As they strolled by the Manzanares the Pharaoh gestured towards the people around them. "Are these the people who used to follow us all the time?" "No, my Pharaoh", said Ko Bo, "the spies of Ah Gi Ray no longer trouble us, for I have taken the matter before the Council of Elders. These people you see are the unemployed and those too old to work, they come here because they have no money." "I miss the spies", said Gayadonn, "it made me feel sort of important." "But of course you are important my Pharaoh, what is more you have not been touched by the curse of Gur Tel and the future is still bright for you."

Further down the track they came to a great construction occupying one bank of the river. "What is this huge building doing in the middle of my oasis?" demanded the Pharaoh. "That is the stadium of Att Letti", said Ko Bo, "one day in its place there will be a beautiful park dedicated to the goddess Pelo Tatho, who blesses all of your great works." "Can't we do it now?" Gayadonn asked. "No my Pharaoh, we have used all of the money from Plan E to make this path and the bridges, you must be patient and wait for the people to start buying houses again."

Suddenly as they walked Gayadonn pushed Ko Bo to one side and shouted "Watch out! Wild boar!" Ko Bo just laughed and said "they are only made of wood, do not worry." "Well that's a stupid idea", said Gayadonn as he realised he wasn't beng chased. "Who thought of that?". Ko Bo decided it was better to say nothing on the subject.

Proyecto Madrid-Rio April 2010 - things have moved on.

The Battle Of El Cabanyal

The timing was perfect. On the day that media attention in Spain was almost entirely focused on the release of the evidence in the Gürtel case, Valencia's town hall sent in the bulldozers to demolish houses in the historic barrio of El Cabanyal. It was an act of open provocation, there is still an unresolved dispute between the Valencian regional and city administrations and the national government over the plans to demolish a significant part of the Cabanyal. Although the demolitions were not inside the area covered by the government's protection, the intention was clearly to shift the balance towards destruction of the area by turning parts of it into a wasteland.

The residents of the area and their supporters protested against the sending of the bulldozers and the response was brutal on the part of the police sent in to protect the demolitions. Despite police claims that they faced aggression from the protestors, television footage has clearly shown people sitting on the road being beaten by police batons. Some of the victims of this violence have already lodged legal charges, and even the government is for once investigating the police actions. The situation is strange, the government is opposed to the demolitions yet much of the police violence came from the national force who are not under the orders of Valencian politicians.

The Valencian administration hopes to turn El Cabanyal into the latest construction based "pelotazo", once they get those awful old low-rise houses out of the way. The profits may not go to the Gürtel companies in this case, but there are other friends to take care of. The government has referred the issue to the Constitutional Court, but in the meantime the Valencian administration will seek to achieve what they want through facts on the ground.

Los Hombres Que Miraban Fijamente A Las Obras

The economic crisis has been tough for many people in Spain. However, whilst there is much discussion about how the country will be able to support future generations of pensioners, little attention has been paid to a severe problem facing those who are already past retirement age.

As you wandered around any Spanish city in the last few years, you would frequently have to navigate around the fences and the trenches that were part of the often astounding number of construction projects taking place. If you paused to take a look at one of these sites you would usually find that you were not alone. It is quite likely that there would be other spectators, usually male and retired. They would not be silent bystanders either, normally there would be a running commentary on how the work was being done, and only rarely would these comments be uncritical.

Then came the crash. Suddenly there was a dramatic decline in the quantity of obras that blocked up so many city streets during so many years. This decline has had a direct knock on effect on those whose mornings often depended on watching other men at work. Government estimates put the current number of pensioners to each obra at a depressing, and unsustainable, 8:1. At the height of the construction boom this figure fell as low as 1.32 "jubilaos" to each site. Now at some sites only the early risers are able to claim a good place.

South of Watford spoke to an anonymous member of a new civic association called No Sabemos Que Hacer Con Ellos, set up by the wives of these pensioners. "You can't imagine what it's like to be woken up every night by someone shouting '¡Hombre, esto no se hace asi!', or '¡Vaya chapuza!'. Before, my husband was happy because he could find 5 or 6 construction projects to watch in a single morning. Now he even travels to the centre of the city looking for one, and sometimes comes back without having criticised a single worker. Things got a bit better with Plan E, but it didn't last".

The members of this association call for drastic measures, the more conservative want a dramatic increase in the male retirement age to 95. The progressive sector is calling for a crash programme of public works which would relieve the pressure as new generations of retired men face a bleak future of hardly any projects to stand around and watch. It's the hidden reality of a crisis which shows no sign of ending soon.

El Patio Se Queda

Last week the police closed off several streets in the centre of Madrid for a special operation. No, it was nothing to do with terrorism or even anything that remotely affected the safety or lives of the vast majority of Madrileños. The big police operation was solely to remove the squatters from a building in the Calle de Acuerdo that had been left empty for years. El Patio de Maravillas was not just a squat for people to live, it housed workshops in languages or bicycle maintenance, offered legal advice services and staged numerous cultural events over the last couple of years. In other words, it made good use of a building that had been left empty for years by its owner and which now may well be empty again until Madrid's ever generous administration permits its demolition for speculative construction purposes. The owner, you will be amazed to hear, is of course a long standing member of the PP who, even more amazingly, is involved already in what could be described as some legally questionable activities related to construction projects.

The occupants of the Patio and their supporters accepted the expulsion, they had little choice given such a massive display of force. However, it didn't take long for them to find a new home with another decaying, unused, building in the nearby Calle del Pez. The Patio continues and represents a movement in favour of a model that finds social uses for buildings where the owner desires nothing more than a demolition order and a subsequent "pelotazo". Madrid is not short of such buildings, there is one in my street that has been empty since I arrived and probably for years before. Anyway, that's enough about Madrid, what about the situation in Valencia?

The barrio of Cabanyal is one of the most traditional in Valencia, and for that reason alone it must have the heart ripped out of it. The Valencian administration wants to make a huge hole in the Cabanyal so that they can extend a broad avenue all the way to the sea. Their argument is that Valencians need "access" to the beach and in their view of the world no sane Valencian would go down to the sea without a broad new road where they can drive their broad new car. Also, incidentally of course, some nice new 5-6 storey blocks of flats can be built by the usual suspects to replace all of those ugly old low buildings. The residents of the barrio didn't agree with the plan and the national Culture Ministry agreed with them by blocking it. The response from the Valencian regional government didn't take long, Mr Camps put on his best suit and an emergency session was convened to change the local legislation protecting buildings of cultural interest so that they can be demolished more easily. Truly an administration that thinks of nothing except the well-being of those who so generously support it.

Cry Me A River

It was in the second year of the period of the Vak Asflak As and hunger had spread throughout the great city of Madrid; for the people had no work. There was much wailing and moaning and even the locusts no longer came. Groups would gather disconsolately on the bridges of the capital to watch the mighty River Manzanares pass by the famished city. "If only our Pharaoh would give us work planting trees in the oasis, then we could feed our families!", cried someone.

The Pharaoh Gayadonn did not listen to his people, instead he fined them for blocking the bridges. "The people must be patient and should not worry", said Gayadonn as he surveyed the city from the heights of his great Tel E Kom Palace. "In only two short years the elections will be held and there shall be work and bread for all, at least for all that are still here". Then he fell silent and contemplated the view from his chambers, facing as it did towards the holy site of Mon Klo Ah, just beyond the Temple of Debod. The people were not convinced but saw that there was little they could do.

After a while Gayadonn left the window and found a large group of citizens standing behind him taking careful notes every time he spoke. "It is pleasing to see such interest from the people in my words", he declared. "These are no ordinary people my Pharaoah", said one of his advisers, "they are the spies sent by Ah Gi Ray to watch you". Gayadonn was about to say "So much attention for someone who does so little", but then he thought better of it.

It's your chance to play Spot The Difference on South of Watford. Of course it's a special crisis edition of Spot the Difference, so thousands of cash prizes cannot be won. All you have to is compare these recent photos of Madrid's flagship Proyecto Madrid-Rio with the ones that I took just over a year ago.

At The Cost Of The Coast

If this report from El Mundo is anything to go by, Spain's construction boom could be in for a hard time in front of the European Parliament. Too late, of course. However, they have brushed aside attempts by the PSOE and PP to dilute the conclusions of a report that is going to go before the Parliament. According to the report in El Mundo one of the recommendations will be that European funding should be linked to good practice in construction. That would hurt if it ever happened. Meanwhile last week saw reports of a change in the Ley de Costas, the law introduced with the intention of controlling development on Spain's coastline. What makes the proposed change curious is that it is being implemented as part of legislation on an entirely different matter concerning maritime navigation. This appears to have been done to avoid attracting attention towards a modification of the law with serious consequences.

The law was originally introduced in 1988, but for most of its life it has been ignored. Before it could be applied in any realistic sense the task of delineating the public domain parts of the coastline had to be carried out. This is a highly sensitive job as it is the basis for determining where new building can be permitted, and which existing buildings are now covered by the restrictions of the law. Work on this job has only really taken off since 2004, and quite significant progress was made in the first term of Zapatero's government. The result of this has been that many property owners have found that their homes by the coast fall inside what is now regarded as the public domain. The current law prevents these homes from being sold, and they are occupied by the owners under a concession from the Spanish state with the intention that they will eventually be demolished.

However, now the government seems to be proposing that owners of homes built before 1988 will be allowed to sell their properties, something which will greatly appreciated by those who bought homes by the beach without knowing that a law would ever be introduced, but which in the process destroys the efforts to recover for public use areas that should never have been constructed in the first place. It looks as if the government has lost its appetite for the task. The Ley de Costas, imperfect and mistreated though it may be, is in the end the only legal obstacle that can prevent end to end concreting of the Spanish coastline.

It's not just the Ley de Costas which is an issue affecting illegal construction. The worst thing of all is a system which allows thousands of illegal dwellings to be constructed and sold to people who are under the impression for the most part that the property they are buying is legal. In the case of Marbella alone in more recent years, we are talking about tens of thousands of homes that have been constructed illegally. The most likely outcome in these cases is that almost all of these homes will be legalised in return for the constructors providing the municipality with a bit of their excess land. This is a solution that is obviously satisfactory for the owners of the properties, but which effectively ends up rewarding the companies who built the illegal homes in the first place for their bad behaviour.

A Million Homes For Sale

A new report by the bank BBVA puts the number of new homes in Spain waiting for a buyer at between 800,000 and 1,400,000. They say that it's difficult to estimate the real figure but that it could easily exceed 1 million. As if that wasn't enough over supply, this figure is going to keep increasing as building projects started before the economic crisis are completed.

The determination of the constructors not to reduce their prices too sharply is going to be severely tested in the next couple of years. The BBVA report estimates that Spanish house prices will drop 25% between 2009 and 20011. Those promotors who said they would rather hand over their properties to the banks than decrease the selling price may be forced to reconsider. Does all of this this mean that anyone in Spain who needs a home is going to have one? Of course not.

Atleti's Olympic Riddle

It seemed to be a perfect plan. Madrid mayor Alberto Ruiz Gallardón would get his Olympic arena as a result of a giant property deal involving the demolition of Atlético Madrid’s Vicente Calderón stadium and the refurbishment of the Peineta stadium on the other side of the city. The football club would get a new stadium, which would be paid for from the flats built on the site of the old one, and this new stadium would also be the centre of Madrid’s 2016 Olympic bid. A huge amount of money would pass, albeit briefly, through Atleti’s bank account on its way to the construction companies who would do so nicely out of building the new flats and upgrading La Peineta. It was the ultimate Madrid deal, the happy convergence of speculative construction with a city administration in permanent need of ever grander projects so that no one will ever forget the reign of the pharaoh. That the club doesn’t really need a new stadium matters little, Atleti’s fans have put up with so much else in recent years this seems almost insignificant by comparison.

Suddenly the plan doesn’t look so good. Problem number one, the rights to the redevelopment of the land occupied by the Vicente Calderón are in the hands of Martinsa-Fadesa. This company is not showing much enthusiasm for building new blocks of flats at the moment. Problem number two, nobody is showing much interest in buying new flats anyway; a situation that looks unlikely to change in the near future. The funding behind the whole deal doesn’t look very secure. As if that wasn’t enough it has been reported that Gallardón no longer regards a revamped Peineta as being sufficient tribute to his wisdom and power. Following his recent trip to Beijing he now wants to have the biggest and best Olympic stadium the world has ever seen. Even with a bit of creative accounting the proceeds of the Atlético pelotazo may no longer be enough to fulfil his wishes. The search is on for companies to take the place of Martinsa, there are certainly many volunteers who will be interested in building the lavish new stadium, but those new flats down by the river are not so enticing at the moment. As for the funding gap, if the city debt is already so high who will notice anyway if they add a bit more? It’s all for a good cause.

Rich Man, Poor Man

It's not just the construction company Martinsa Fadesa that is seeking to avoid its creditors. The man behind that company, Fernando Martín has also applied to have himself declared insolvent. This might seem fair enough, if he was having financial difficulties, but Martín managed to earn the far from trivial amount of 85 million euros in 2007, more than the entire annual salary bill for the company. That's not including his earnings from Martinsa Fadesa where things were going so very, very well that each member of its board of directors had to be paid a minimum of 6.7 million euros. Now it seems he's spent it all and hasn't got a penny. Are there any millionaires reading this blog who can shed some light on this situation?

Via Moscas en la Sopa

Not Everyone Can Win The Lottery

It’s not just on the Mediterranean where major corruption cases linked to construction interests emerge. Even though Madrid doesn’t have a playa (vaya vaya) that doesn’t mean the region is of no interest to the anti corruption prosecutors. The latest major case concerns a place just over the border in Toledo province called Seseña. This village, which used to have just 9000 inhabitants, was the place chosen for a massive new property development designed to attract those leaving Madrid in search of cheaper housing. The man behind this development is called Francisco Hernando, although he is more commonly referred to as "El Pocero". The development has now become something of a symbol of the end of the construction boom, only 5000 of the intended 13000+ dwellings have been constructed and only around a thousand are occupied. For sale signs placed by those who bought there now compete with the efforts of El Pocero’s own company to shift unsold units.

The hugely controversial development should never have been started at all, it was approved by the previous municipal administration against the advice of the technicians and despite it being located in an area where water supplies could not be guaranteed. Eventually the PSOE run administration that approved the plan was disowned by their party and the municipality came under the control of Izquierda Unida and a mayor absolutely opposed to El Pocero’s plans. Now it has been announced that the former PSOE mayor is under investigation for a highly suspicious increase in his personal wealth since El Pocero came to town. The former mayor claims that his new found wealth, estimated at over 600000 euros, is due to some good luck with a lottery ticket.

Meanwhile El Pocero is actively seeking revenge against the new administration in Seseña, who have dared to defy him and who were returned to power in last years municipal elections. He has launched a whole series of legal cases against the mayor, Manuel Fuentes, whose supporters are now being forced to raise funds to pay a court imposed guarantee. As if that wasn’t bad enough Hernando is seeking to sue the municipality for compensation for his unsold properties! The municipality has already been forced to raise taxes to pay for services for the new residents of a development that they never wanted to have. The situation illustrates all of the ugliest characteristics of those cases where a powerful developer attempts to impose his will on local politicians and create facts on the ground that the law will later be unable to do anything about. It’s a battle that Seseña needs to win, not just for reasons of democratic hygiene but also as an all too rare demonstration that money doesn’t always talk.

No Longer Blowing Bubbles

That crashing sound you hear is the noise made by a Spanish construction company going into administration to try and hide from its creditors for a while. The company in question is one of the biggest in the sector, Martinsa Fadesa. This company is run by Fernando Martín and has grown very quickly on the back of the housing boom in Spain. Perhaps too quickly, the company is unable to pay its debts which currently stand at over 5,000,000 euros. This is not just a short term liquidity crisis although the cause of the move by the company has been its inability to raise further funds.

Probably the first law of bubble economics should be that you always believe that your particular bubble is different from all of the others and will never burst. That was certainly the attitude taken by Martín who was scornful of suggestions that the housing market could not keep booming indefinitely. Indeed, the major cause of the huge debt his company has was the purchase of Fadesa, which he bought early last year. The man who sold Fadesa is now being regarded as a visionary, there is no doubt he got out at the right time. Pedro Solbes, a man who is hardly prone to exaggeration, says that excessive risks have been taken. That, in Solbes speak, is equivalent to making an accusation of fantastic recklessness. But if you believe your bubble will never burst these are the sorts of things you do.

Maybe the second law of bubble economics should be that those who get most hurt by the bursting bubble are not those who got most benefit from it while it lasted. The 28% of the company’s workforce currently facing the sack are going to take the immediate brunt of the company crisis. Indirectly the company is also responsible for many other jobs. Over 12,000 people have put down money for homes from the company which have yet to be built. Even some of the banks, normally immune to almost everything, are going to feel the pinch at least temporarily as they are forced to provision against the huge amounts of money lent to Martinsa. South of Watford says never trust a builder who has been president of Real Madrid, even if Martín was only there briefly to fill the gap between Florentino Perez and his successor.

Spain At A Glance....Construction Plummets

Evidence from Eurostat of how things are worsening in the Spanish construction sector. To put things into perspective the decline in April 2008 for the Eurozone was -2.4% and for the European Union as a whole it was just -0.3%.

Charts code courtesy of soitu.es

Madrid, Olympic City

Bad news. Madrid is one of the four cities competing to host the 2016 Olympics, having passed the initial selection. The rivals are Tokio, Rio de Janeiro and Chicago. Having lost out to London for the 2012 event, Madrid’s administration has gone straight for the following games. I’m not a big enthusiast for the Olympics anyway, and I suspect after this year’s show in Beijing there will be fewer fans of the event. However, Madrid Pharaoh and part-time Mayor Alberto Ruiz Gallardón is determined to get the games, largely as a monument to his everlasting glory.

One of the key projects proposed by Gallardón is…..and you’re just not going to believe this….the burial of part of the outer ring road near to the Olympic stadium! At last, urban tunnelling is going to get the recognition it deserves and become an Olympic sport. This should help to increase the local medal haul, especially as it forms such a neat triathlon with property speculation and trench hurdling as parts of the city are ripped up yet again. I assume that the plan for Atletico Madrid to pay for the Olympic stadium still stands, although I wonder whether the housing construction planned for the site of the club’s existing stadium will really seem so attractive as property prices plunge? Perhaps if no one is interested in buying houses on the site they could just erect a giant obelisk in honour of the Unknown Speculator. In the event of a successful bid, I predict many other pointless but hugely expensive great works as Madrid reaches out to become the most heavily mortgaged city in the world.

An interesting side effect of the bid is its effect on Gallardón’s political future in the PP power struggle. The Olympic bid requires Gallardón to spend the next couple of years providing suitable incentives to members of the International Olympic Committee, which could leave him a bit too busy to fully fight his corner in the PP. Meanwhile, we are left with the hope that the international selectors will not allow the games to be held on European soil just four years after the London Olympics.

We'll Bottle Your Water And Sell It Back To You

Those who campaign for water to be transferred from the River Ebro to Valencia and Murcia have been very vocal recently in the wake of the proposal to do a temporary transfer of drinking water to Barcelona. We hear heartrending tales of how crops will dry up unless the rest of the country shows a bit of solidarity with the Mediterranean areas. Andrés Martínez, the president of a farmers association in Villena, Alicante, has been particularly active in the pro-transfer campaign. It turns out that his interest in the issue has very little to do with anything you can grow. First of all his association is so strapped for water that they have agreed to sell their rights over water from the local aquifers to Danone, so that they can bottle it and sell it as mineral water! Then it emerges that Martinez himself has another plan to grow houses instead of carrots, he wants to build an urbanisation of 1200 homes and (do I really need to mention this?) a golf course. Thirsty work, I’m sure you’ll agree, I suppose those who buy the houses will need to get their water from Danone.

I’m not trying to suggest with this example that there are no water problems in parts of the Mediterranean region, there always have been. It’s just that the interests behind the campaign to transfer water from other parts of Spain have much more to with an unsustainable model of development that will never be satisfied. Those who have dedicated themselves to agriculture in the region have always been very careful with water usage, treating it as a scarce resource. Those who have more interest in concrete, bricks, and golf show no intention of managing water resources, their solution will always be to demand more from other parts of the country.

650,000 Reasons Why The Builders Are Having Problems

The lack of reliable information on what is going on with the construction industry here in Spain can be attributed largely to the fact that the news is not good. When things were going well we were being overwhelmed with statistics about homes constructed and sold. The industry is now desperately trying to play down the evidence of a decline in prices whilst the statistics on the falling number of sales and mortgages granted tell their own story. El País at the weekend came up with some extraordinary figures, they did an estimate based on the difference between the number of dwellings built since 2005 and those registered by their new owners to come up with a figure of 650,000 unsold homes around the country. That is just new building, what the Spanish call “second hand” dwellings are not included in this estimate.

This total represents about one dwelling for every 70 inhabitants in the country, and if it is near to the truth then it makes the optimistic industry spin that the worst will be over by next year look hopelessly misplaced. With a stock of unsold properties this big it is hard to see anyone engaging in serious building projects to add further to the pile of the unsold. As if it didn’t sound bad enough, this total can be expected to increase further because of the numerous building projects started before the end of the boom but that have yet to be terminated. There are regional variations, El País highlighted the case of Castilla - La Mancha saying that 68.5% of the new properties built there since 2005 are still unsold. The high figure in this region could be due to the attempts to convert parts of it into the new dormitory towns of Madrid. The effects on employment are already being noted, as are the early signs of construction companies having liquidity problems. Who is going to argue, looking at these figures, that the worst has already passed?

A Crisis Of Denial

One the dam bursts there is little you can do, except wait until the flood passes and hope it doesn’t do too much damage. The collapse of the bubble market in Spanish housing is becoming more evident with each fresh piece of news, to the extent that even the industry itself has finally been forced to acknowledge that prices are falling. The latest figures on completed sales show a dramatic decline and most predictions on what will happen suggest that the crisis will carry on at least through 2009, and may even get worse.

The IMF has suggested that housing prices in Spain could fall by as much as 20%, the industry estimates are of course lower than this as those who have most to lose attempt to minimise the scale of what is happening. It’s a delicate game in a market that depends so much on consumer confidence in what is going to happen, once you acknowledge there is a serious problem that also increases the risk of the problem becoming worse as buyers decide to wait for prices to fall further. Add to this the fact that many of the statistics now emerging on completed sales are already out of date; they reflect the position as it was several months ago. Meanwhile, the credit squeeze means that many construction companies and promoters are facing difficulties as they had severely overstretched themselves; the assumption always being that this bubble is different from the last one and that there is no end in sight.

Some of the effects of the crisis were reported on yesterday in El País in a piece focusing on the ridiculously unsustainable development carried out in Seseña and the enormous project of Marina D’Or in Castellón. Already advertising strategies have changed and all sorts of offers are being made by promoters in an attempt to shift what has already been built. Given the scale of some of these offers, you can only wonder about the profit margins many of these companies were working with when the market was booming. As if this wasn’t sufficient evidence of what is going on, it has now been reported that the huge quantity of €500 notes circulating in Spain has finally stopped rising, surely a sign that things are not going well in a sector awash with money of unclear origin?

The effects of the crisis are grim for those who have bought at a higher price than the market currently supports. The banking sector claims that it is in no danger and banks in Spain are required to provision quite heavily against potential problems. However, that security would become less sure if there was a significant increase in mortgage defaults. The good side of the crisis is that new buyers benefit from an end to constantly spiralling prices, and the determined attempts to extend the suburban frontiers of Madrid into all available countryside will hopefully be set back for a few years at least.

Each new economic growth estimate seems to be a little bit lower than the previous one and trying to deal with some of the consequences of the end to the boom is going to be the main economic priority for the new government. At times like these a balanced budget is no longer an issue, and investment plans can be expected for social housing and construction projects to try and keep the construction sector of the economy active. This will be accompanied by proposals to help mortgage payers in difficulties extend their payment time. No one currently knows whether we are talking about a slowdown or a slide into recession, but believers in the property bubble are few and far between these days.

The Battle Of The Prado

Anyone who thinks that the political battle between Esperanza Aguirre and Madrid mayor Alberto Ruiz Gallardón ended when Aguirre blocked Gallardon’s chances of getting into the Spanish parliament could not be more wrong. The battle between the two rivals has taken a new twist in the last couple of weeks in a tussle over plans by Gallardón to reform the area of Recoletos and the Paseo de Prado in the centre of Madrid. As work is about to begin, Aguirre’s regional administration has stepped in to request an environmental impact assessment on the project and to stress that a significant part of the area affected falls under regional control. It is a move which would hold up the project for a minimum of several months.

Now both Aguirre and Gallardón have past form when it comes to avoiding environmental impact studies of their great projects. In Gallardón’s case the European Union got involved over the giant project to bury the M-30 ring road and to replace it with an innovative urban desert. Unfortunately by the time the EU turned up asking to see the environmental report the project was more or less over. Meanwhile, Aguirre pressed ahead in similar fashion with a controversial project to straighten and re-route a road running through the countryside near Madrid; a project widely believed to be linked to plans to urbanise as much as possible of the area. This was in spite of the existence of a negative environmental impact study. This project has ended up in the courts, but again much of the damage has been done before any action has been taken; this being truly a country where facts on the ground count for much more than anything the law might say.

The Prado-Recoletos reform is the flagship project of Gallardón’s current term and has already undergone much revision as a result of the Baroness Thyssen threatening to lie under the bulldozers unless she got her way on preserving the area around the Thyssen Museum. It is a bit ironic that the attempt to enforce environmental assessment should come with perhaps the only one of these mega projects that potentially increases the amount of space available to pedestrians rather than cars. The regional government seems to think that what the project needs is a new tunnel underneath into which they can funnel even more traffic through the heart of the city. Now tunnels are something that Madrid does well, which is perhaps not surprising as much of the past (and future) city budget has disappeared into the multiple tunnels that honeycomb the city.

Gallardon’s administration has responded with a fairly common deceit. Instead of treating the project as a whole, they now propose to break it up into several mini projects and start work immediately on those parts where the regional government has no competence. Blessed as we are with such far sighted visionaries as our municipal and regional leaders, there is clearly no reason at all why the execution of a massive civil works project in the city centre should be allowed to take priority over yet another bout of political infighting.

Meanwhile Gallardón has ended his post-election period of reflection on his political future by deciding that he likes his job after all, at least when the only available alternative is not having any job. He has also transformed himself into a fervent Rajoy loyalist, knowing as he does that there is no realistic possibility of him successfully challenging the current PP leader. Last week he poked Aguirre supporters in the eye by presenting a motion pledging allegiance to Rajoy to the entire PP group in the city administration – a group which contains several Aguirre supporters; none of whom felt able to refuse support to the motion. In the case of the Espe and Alberto show, we are just witnessing the end of the beginning.

Send In The Bulldozers

As I’m going to the Canary Islands for a few days over Easter, it seems an appropriate time to post on one of the latest Spanish construction scandals to emerge. This one concerns Lanzarote, following a decision by the supreme court in the Canary Islands to cancel the licences of some hotels (in Spanish here). The use of the word “some” here is really a deliberate understatement because the number of hotels declared illegal is actually 22, and they include some of the most luxurious accommodation on the island. The total number of rooms in the hotels is 7721, so at an average of roughly 350 rooms per hotel we are hardly talking about a few small bed and breakfasts.

The hotels are illegal because they were built in defiance of a moratorium on new tourist construction that was introduced in 2000. In some cases they are also illegal because they break the Ley de Costas which is supposed to prevent construction in public domain areas bordering the sea. Two municipalities on Lanzarote decided that such restrictions didn’t apply to them, and it seems that several well known hotel companies such as Melia also decided that the law is just for the little people. Amazingly, the European Union did its bit by contributing over €30 million of funds supposed to be for deprived areas to assist these big companies in breaking the law.

Comparisons are already being made with Marbella, where tens of thousands of illegal dwellings were constructed before action was finally taken against those running the town. The problem arises of what to do about such constructions once they have been built and are being used. I find it impossible to believe that no power exists to halt such illegal building or that the authorities can claim to be unaware of what is happening. In Lanzarote, it has been a private foundation that has done much of the work to get these licences cancelled.

Sadly, there is already talk of adopting the Marbella solution to the problem which consists of the developers compensating the local authorities by handing over other land they own to public control. I really hope they don’t do this in this case. With Marbella it’s a difficult situation because many people will have bought flats or houses in good faith believing them to be legal, but in this case it concerns hotels being run by the people who built them. If they are allowed to get away with just handing over a piece of useless scrubland to the local authority as compensation then they will carry on building illegal hotels because there is no great loss involved in doing so. Lanzarote is a biosphere reserve, but won’t deserve the title for much longer if this kind of operation is permitted. Send in the bulldozers at the cost of those who did the construction, it’s the only way the people involved will learn that they can’t do what they like.