Activity development leadership and geographic areas in Spain
| DOI | https://doi.org/10.1108/14635780010339262 |
| Published date | 01 June 2000 |
| Date | 01 June 2000 |
| Pages | 371-398 |
| Author | Paloma Taltavull de La Paz |
| Subject Matter | Property management & built environment |
Academic
papers: Activity
development
371
Journal of Property Investment &
Finance, Vol. 18 No. 3, 2000,
pp. 371-397. #MCB University
Press, 1463-578X
Received June 1999
Revised February
ACADEMIC PAPERS
Activity development
leadership and geographic
areas in Spain
Paloma Taltavull de La Paz
International Economy Institute and Analisis EconoÂmico Aplicado
Department, University of Alicante, Spain
Keywords Development, Housing, Location
Abstract Theory and empirical research show how building cycles' behaviour has substantial
differences within countries among its different geographical areas. There is evidence of the
existence of specific area leadership regarding development activity and how this influence is
transmitted to the rest of the country as a locomotive effect in residential construction. This
means that the aggregate building cycle could strongly depend on cycles in specific areas. This
paper follows this approach and investigates the relationship between geographic areas' intensity
in housing construction, showing how activity development in some of these areas is influencing
the rest of the country. This process is analysed in Spain during the 1990s, using information on
house licenses of construction given by regional areas and applying cointegration methodology to
identify leading areas in building activity. Some leadership effect is found in the Levante area
attracting building activity from the rest of the country during this period.
Introduction
Because of characteristics of houses as economic good, differences in the
market behaviour in each geographical area are determined. Specific features of
productive systems and residential demand and supply factors, determine a
different equilibrium and dynamism's models in each market, although
everyone is, at the same time, being influenced by the economic cycle. This
leads to the acceptance of the principle of ``locality'' in residential markets and
the need to analyse demand and supply particularities separately in order to
identify the mechanisms influencing them[1].
Economy globalisation process and progressive liberalisation of capital
movements in the 1990s have contributed both to growth of residential areas
within Europe and to important financial flows into real estate markets
worldwide. The influence of foreign investment, as well as the economic cycle,
seems to affect the housing activity in different residential markets.
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First version of this paper was presented at the 6th European Real Estate Society Conference, in
Athens, June 1999. It is based on a survey on the housing market by geographical areas in
Spain, which was financed by FundacioÂn Argentaria. I would like to thank Professor Ismael
FernaÂndez, from the International Economy Institute and the University of Valencia, for his
valuable support on cointegration analysis included in the paper and to two anonymous
referees for their helpful comments.
JPIF
18,3
372
In the Spanish economy these changes are not well known. In the past, long-
term changes in demand factors influenced growth and consolidation of larger
residential markets such as Madrid or Barcelona, and in the main province
capitals (Taltavull, 1998). During the 1990s, as a consequence of structural
changes that have taken place in Spain, housing supply behaviour appears to
be very different among areas. There is an unusual expansion in some of them,
that do not appear to be produced by the same factors as in the past. This trend
shows the existence of a leading behaviour in housing construction in some
geographic markets that have to be analysed.
Relations among development activity in different regions are not fortuitous.
Housing theory shows that effects on house-building activity are when changes
on house demand are produced in all markets, and their intensity depends on
the delay-model of the supply sector facing demand shocks and how each one
reaches equilibrium.
These factors are mainly demographic, such as changes in the migration
model, and/or different economic growth rates. However, the idea of the
existence of a feedback effect among areas arises when local residential markets
in different regions is analysed, especially in the low level of dynamic ones
(Taltavull, 1999). This paper aims to contrast the existence of this effect among
large Spanish areas.
This effect has been dealt with in the literature through observation of the
residential development cycle in some geographical areas, thus generalising the
concept of property cycles as ``internal cycles'' of markets with specific features
and phases (RICS, 1994). Some research has shown the existence of a relationship
between the housing activity development model of specific areas and their
leadership in the influence on the others as a locomotive effect in residential
construction. Tse et al. (1998) show the existence of a long-term relationship
between the residential activity in US housing markets, and how southern and
western areas are leaders in changes in construction development, prior to the
generalisation of the housing cycle in domestic markets. This contrast wasmade
using Unit Root analysis (Dickey and Fuller, 1979, 1981) and cointegration
contrast (Johansen, 1988, 1991), that allow us to detect the existence of long-term
shared behaviour and short-termrelations between variables.
Proving leadership in housing activity in the areas has relevant implications.
On the one hand, it means that the national building cycle in a country can
depend strongly on those building cycles in specific geographical areas. Since
residential investment is one of the main elements of a business cycle in a
country, leadership in residential development would show how residential
activity located in some geographical areas has an important effect on the
general economic growth (Green, 1997). On the other hand, the in-depth
analysis of the existing relationship between residential construction models in
different Spanish areas enables us to shed some light into the future regional
development, and it can ease the developers' decision-making process
regarding housing policy aims.
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