Impact of unfinished residential developments on municipal economic forecasts: Evidence from medium-sized Spanish cities

Abstract

The economic impact of each new residential development on the public budget can be very different than expected when, due to the real estate speculation, a poor demand forecast or to unexpected reasons, the dwellings are not built and occupied by their final users within the planned term. To quantify to what extent public costs and revenues are affected in unfinished developments, the economic balance of the public services operation when vacant lots, empty dwellings and dwellings with temporary occupancy are persistent in the long term has been simulated in three theoretical developments under the tax burden and operating cost of a sample of Spanish municipalities. Regardless of the local particularities, the results obtained show a clear stress to public finances when dwellings are not built, and less robust statistical results when said dwellings are built but remain empty or are occupied only temporarily. This leads to a reflection on whether the current tax system, based more on the amount of real estate properties than on their effective use, is the most appropriate for the promotion of sustainable urban patterns.