Working Papers

May 1994, No. 94-6

Commercial Real Estate Overbuilding in the 1980's: Beyond the Hog Cycle

Raymond E. Owens

Overbuilding in commercial real estate in the 1980s is commonly viewed as an example of a speculative bubble. This paper questions that view and proposes an environment in which overbuilding could occur as a rational response to fiscal policy in the 1980s. Further, this paper contends that overbuilding could have been accompanied by bank financing, even when banks were aware that they would incur losses associated with the loans. Finally, it is maintained that banks' lending behavior was consistent with profit maximization.

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