*3.2. The Impact of the 2008 Global Economic Crisis on the Spanish City*

Periodic economic crises and their various manifestations are inherent in the very logic of the capitalist system, since the basic tendency to over-accumulation generates, episodically, surpluses of capital, scarcity of investment opportunities, falling rates of profit, and a lack of effective demand in the market. Consequently, according to Harvey [23], they apply a certain order and rationality to capitalist economic development, since they expand the productive capacity and reintroduce the conditions for a new accumulation, although, at the same time, they lead to dramatic social consequences: financial collapse, forced devaluation of capital assets and personal savings, inflation, a fall in real wages, and unemployment.

The economic crisis that occurred in the United States in 2007 and spread globally due to the bursting of a large financial bubble was a response to this profile. The latter had been forged by the practice by US banks of issuing real estate bonds that offered high profits and low risk through deregulation mechanisms, a procedure that was copied by many other countries, such as Spain. To keep the capital flow of these bonds constant, mortgage loans were granted in bulk, the so-called "subprime" mortgages, but when investors demanded payment of these bonds, interest rates rose because nobody knew what the packages of securities contained. The banks were unable to respond to this demand and a liquidity crisis, a credit crisis, and, as a result, an employment crisis ensued.

In southern Europe, austerity was marked by a shift toward a starker version of neoliberal doctrine, but the crisis did not lead to the reforms expected, at least not in the field of housing [24]. In the particular case of Spain, the system of accumulation of surpluses in the secondary circuit, which had been based on the collaboration of the building–real estate sector, the financial system, and the political–administrative system, turned into over-accumulation when financing contracted in 2008 in the face of a lower outlook for performance, with the consequences of a decrease in demand, greater difficulties for promoters in selling and financing, and a complete contraction of the sector, which affected the economy as a whole [25] (Figure 3).

**Figure 3.** Factors conditioning the economic housing crisis in Spain (2008–2015). Source: author's elaboration.

A good example of the drop in the general housing price, by autonomous communities, in 20081Q–20141Q is shown in Figure 4. This dynamic is related to the fact that, in those autonomous communities where the prices were highest at the beginning of the real estate bubble bust, the fall was greater [26].

**Figure 4.** Difference in the general housing price index (Base index 2015) (20081Q–20141Q). Source: Housing Price Index (HPI), National Statistics Institute, Spain (INE) [27]. Author's elaboration.

Otherwise, the economic crisis and rising unemployment led to a dramatic increase in mortgage defaults by buyers. According to Méndez [28], the growing socio-professional precariousness spread to professional groups, to the middle classes, and to territories that seemed immune. Wage devaluation polarized the labor pyramid and increased the distance between its extremes, and the mortgage-holders who could not meet their loans could not use the house as an asset to save the situation, either, because the market prices, which were logically falling, were lower than the mortgage amounts contracted.

This led to a rise in foreclosures and repossessions, although in many cases the assets did not allow the balance sheets of the lending institutions to be restored, given their lower value on the market. Likewise, the worsening economic situation of part of the population put rent payments at risk, so that evictions for non-payment of rent, another side of the same process, were also generated. In other words, according to Romero [29], the virtuous circle of the financial and real estate economy in the expansion stage soon turned into a vicious circle of loss of value, eviction, and reduction of income and capital, with the aggravating factor that an institutional system was not activated to alleviate its devastating social effects, either through the transfer of income or by making payment conditions more flexible.
