Housing bubbles and land planning corruption: evidence from Spain’s largest municipalities

Abstract

Purpose: The purpose of this paper is to quantify to what extent the housing bubble in the early-to-mid 2000s in Spain exacerbated land planning corruption among Spain’s largest municipalities. Design/methodology/approach: The authors exploit plausibly exogenous variation in housing prices induced by changes in local mortgage market conditions; namely, the rapid expansion of savings banks (Cajas de Ahorros). Accounting for electoral competition in the 2003–2007 and 2007–2009 electoral cycles among Spanish municipalities larger than 25,000 inhabitants, the authors estimate a positive relationship between housing prices and land planning corruption in municipalities with variation in savings bank establishments using instrumental variables techniques. Findings: A 1% increase in housing prices leads to a 3.9% points increase in the probability of land planning corruption. Moreover, absolute majority governments (not needing other parties’ support) are more susceptible to the incidence of corruption than non-majority ones. Two policy implications to address corruption emerge: enhance electoral competition and increase scrutiny over land planning decisions in sparsely populated. Originality/value: First empirical evidence of a formal link between the 2000s housing bubble in Spain and land planning corruption.