The Real State of Real Estate

On December 17th the New York Times published an article by Suzanne Daley and Raphael Minder about the rise and fall of Spain’s real estate market.
http://www.nytimes.com/2010/12/18/world/europe/18spain.html?src=twrhp

Although this story is not unique to Spain or California or other potential resort areas in the world including our own, what the authors say about the situation should make us think seriously about what is often heard locally – that the construction industry provides employment. There is no disputing that. A local business magazine in a recent article included the line “Build it and they will come”, but the reality is ‘they’ might not and then what? Isn’t it about time that our own local governments, banks and developers take a more realistic approach to what is really happening. It is all very well to be optimistic and idealistic but reality must be faced sooner or later. It is not only banks that take a major loss when bubbles burst but also local governments and the residents who may have supported development in one way or another. Local employment also takes a huge hit. Yes, construction provides employment but there have to be the people and employment opportunities for the people to fill the vacant homes. Construction is not an end unto itself. The Daley/Minder article states:

Developments sprang up on the outskirts of cities ready to welcome the four million immigrants who had settled in Spain, many employed in construction. But almost overnight the market disappeared. Many immigrants went home. The national unemployment rate shot up about 20%.

It was interesting to note that a headline in one of our local papers very recently stated that vacancy rates are up. When one listens to those employed in the real estate industry and homeowners who are trying to sell there appears to be a large inventory of homes for sale in this area. Unfortunately the local golf course developments that were ushered in with much fanfare are not bursting with activity. A great deal of leeway has already been granted to some development projects. Investment has been made in sports facilities that cannot pay their way. Public debt affects us all and it is common knowledge that too much of anything is not a good thing. Put any commodity in short supply and it will become more desirable and therefore valuable.

The picture is clear and rose tinted glasses are not necessary. Facing these issues realistically will surely bring about better planning and a better future for all who live here.