Abstract
The weight of the housing tenancy market in Spain is very low. It is frequently argued that an ineffective judicial system, implying a cumbersome procedure to evict a non-paying tenant or simply requiring a long period to execute a decision, may be an important determinant of the tenancy market’s weakness, as it constrains the effective supply by reducing the profitability of landlords. This research studies this effect econometrically using a panel data approach and exploring differences in judicial efficacy among the Spanish provinces. After controlling for several other factors, this study concludes that the degree of inefficacy of the judicial system has a positive impact on the property share among provinces in Spain.
Highlights
Since the Spanish Civil War (1936–1939) the weight of the housing property market has persistently increased in Spain
This paper aims to analyze the impact of an ineffective judicial system in Spain on the housing tenure outcomes by exploiting the cross-province variation existing in the weight of the house property market in Spain and in the performance of the judicial system
This paper aims to assess to what extent the efficacy functioning of the judicial system explains the varying weights of the property market in the Spanish provinces once other concurrent factors are taken into account
Summary
Since the Spanish Civil War (1936–1939) the weight of the housing property market has persistently increased in Spain (in contrast to developments in the rental market). Several factors may have affected the evolution of the property share in Spain over the last decades These factors include the fall in interest rates (Blanco and Restoy 2007), especially after 1995; liberalization of the banking sector since 1980 (Kumbhakar and Lozano-Vivas 2004; Iacoviello and Minetti 2003), more stringent tenancy laws having been adopted following World War II (Mora-Sanguinetti 2011), and a fiscal regime which favors buying over renting (López García 1996; GarcíaVaquero and Martínez 2005). The relative weakness of the tenancy market as compared to the property market in Spain is somewhat exceptional. This situation is generally regarded as undesirable for several economic reasons. Arce and López-Salido (2007) have emphasized that a well-developed housing rental sector can be a crucial device to avoid housing price bubbles and the excessive concentration of resources in the building sector
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