Wholesale funding and the increase in construction bank-owned real estate in the US financial crisis

The housing crisis left some metropolitan areas littered with partially constructed subdivisions and developments. Most of these failed developments were built by small construction firms reliant on small banks for finance. Failed construction projects became bank-owned real estate (REO), prolonging the crisis and contributing to an uneven recovery. But there is little research on the spatial distribution or financial processes driving construction REO. I use a finance-as-spatial fix theorization to describe increasing interrelation between construction lending and global capital markets through wholesale funding, and the subsequent buildup of construction REO. Wholesale funding allows small banks to access money markets. Controlling for economic growth, the home price bubble, and financial institutions, I use a national panel regression to identify key factors associated with high levels of construction REO in urban areas. Consistent with a finance-as-spatial-fix analysis, the strongest determinant of construction REO was the type of capital flows into small banks.