Description
Book SynopsisA fascinating analysis of the critical role commercial property investment played in the economic boom and bust during the global financial crisis
The unprecedented financial boom stretching from the mid-1990s through 2008 ultimately led to the deepest recession in modern times and one of the slowest economic recoveries in history. It also resulted in the emergence of the draconian austerity policies that have swept across Europe in recent years. Property Boom and Banking Bust offers an expert insight into the complex property market dynamics that contributed to the Great Financial Crisis of 2008 and its devastating economic consequences. It is the first book to focus on a woefully underreported dimension of the crisis, namely, the significant role that lending on commercial property development played in the crisis. Among other key topics, the authors explore the philosophical and behavioral factors that propelled irresponsible bank lending and the prope
Table of Contents
List of figures ix
Acknowledgements xi
Glossary xiii
1 Introduction 1
Sub-prime Lending Enters the Financial Vocabulary 2
The Global Extension 5
Commercial Property Market Context 6
Commercial Property’s Role in the Wider Economy 13
Property Investment and Short-termism 14
Measuring Commercial Property Market Performance 14
Book Structure 16
2 Long-term Changes to Property Finance and Investment 21
The Changing Role of the Banks in the United Kingdom 21
Property Development and Investment Finance 25
The Changing Investment Landscape of the Non-banking Financial Institutions 29
The Other Main Players in Commercial Property 30
The Changing Face of Institutional Property Investment 31
Limited Partnerships 34
Jersey Rides to the Rescue 37
Unit Trusts and Indirect Investment 39
Conclusions 41
3 Economic Growth, Debt and Property Investment through the Boom 43
Global Economic Upturn and Debt Accumulation 43
The Property Boom and Escalating Debt 46
The Cost and Role of Debt 52
Development and its Finance in the Noughties Boom 57
The Weight of Money and Moving up the Risk Curve 61
Conclusions 63
4 The Anatomy of the Property Investment Boom 65
Commercial Property, the Macroeconomy and Globalization 66
Global Property Upswing 68
Market Trends in the Property Boom – Was Something Different this Time? 71
UK Investment Trends 76
Lending To Commercial Property in the United Kingdom 82
A Property Boom in an Irrational Market 83
Summary and Conclusions 88
5 The Global Financial Crisis and its Impact on Commercial Property 91
A Crisis Unfolds 92
The Impact on Global Property Markets 95
Capital and Rental Values in the United Kingdom Post 2007 98
But This Time the Bust Was Also Different 100
Investment Trends and Capital Value Falls 106
Changing View of Risk 112
Summary and Conclusions 114
6 Property Lending and the Collapse of Banks 117
The Crumbling of the UK Banking System 118
Royal Bank of Scotland 121
Halifax Bank of Scotland 122
Britannia Building Society and the Co-operative Bank 130
Dunfermline Building Society 131
Irish Banking Collapse 132
US Experience 136
Discussion and Conclusions 139
7 Aftermath and Recovery 143
The Macroeconomic Context 144
Property Market Trends 147
Bad Bank Debts and Impairments: The Road to Redemption 151
The Response of Property Investors, Property Funds and Property Companies 158
Property Lending Post-GFC 161
Implications for the Pricing of Commercial Property and Investment 162
Conclusions 166
8 Conclusions 169
Globalization 171
The Boom and Bust through the Prism of Valuations 173
Role of Banking 173
Irrational Exuberance 174
Could It Happen Again? 176
What Can Be Done? 177
Final Thoughts 179
References 181
Index 191
