The Political Economy of Housing Booms and Busts in Europe's Periphery

It is widely accepted that housing and mortgage credit booms have been the primary causes of the Great Recession. Yet, most analyses of housing booms and busts focus on core countries – especially the US and UK - whereas research on Europe’s periphery is mostly concerned with problems of sovereign debt, labor market institutions and lack of competitiveness. However, the biggest house price and mortgage lending booms occurred in Europe’s periphery, not its core. This paper seeks to fill the research gap by addressing two sets of questions. First, what explains the mortgage and house price booms in Europe’s poorer countries and in how far do they reflect core-periphery relations in Europe? Second, how have governments responded to the house price and credit busts and is there anything specific “peripheral” in their responses? Based on four cases - Hungary and Latvia on Europe’s eastern; and Iceland and Ireland on Europe’s western periphery - the paper will argue that it is the specific combination of a “latecomer” housing regime, the transnational liberalization of capital markets and poor supervisory competences that explain the specific vulnerability of peripheral countries to housing and mortgage lending booms. Governmental responses in turn are characterized by an unusually high degree of external constraints, which are in some cases matched by an equally high degree of policy experimentation