Land Use Policy 28 (2011) 280293

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Land Use Policy

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Crisis management in construction and real estate: Conceptual modeling at the

micro-, meso- and macro-levels
A. Kaklauskas a, , L. Kelpsiene a , E.K. Zavadskas b , D. Bardauskiene a ,
G. Kaklauskas a , M. Urbonas a , V. Sorakas a
a
Department of Construction Economics and Real Estate Management, Vilnius Gediminas Technical University, Sauletekio av. 11, Vilnius LT-10223, Lithuania
b
Department of Construction Technology and Management, Vilnius Gediminas Technical University, Sauletekio av. 11, Vilnius LT-10223, Lithuania

a r t i c l e i n f o a b s t r a c t

Article history: Integrated analysis and rational decision-making at the micro-, meso- and macro-levels are needed
Received 27 July 2009 to mitigate the effects of recession on the construction and real estate sector. Crisis management
Received in revised form 5 June 2010 involves numerous aspects that should be considered in addition to making economic, political and
Accepted 9 June 2010
legal/regulatory decisions. These must include social, culture, ethical, psychological, educational, environ-
mental, provisional, technological, technical, organizational and managerial aspects. This article presents
Keywords:
a model for such considerations and discusses certain composite parts of it. In the process of this discus-
Construction
sion, the article analyzes the situations existing in Lithuania, the EU in general, Asia, the USA and other
Real estate
Crisis management
parts of the world and considers their similarities and differences in crisis management. The research
Global development trends involved herein includes six stages: (1) comparative description of crisis management for construction
Alternatives and real estate in developed countries and in Lithuania, (2) comparison and contrast of crisis management
Lithuania for construction and real estate in developed countries and in Lithuania, (3) general recommendations for
Modeling improving crisis management efciencies in Lithuanias construction and real estate sector, (4) recom-
Forecasting mendations that are specic for Lithuania, (5) multiple criteria analysis of crisis management components
and selection of the most efcient life cycle version of crisis management in construction and real estate
and (6) transformational learning and redesign of mental and practical behavior. The obtained results par-
tially substantiate the available data. Additionally interesting management trends in construction and real
estate crisis are noted. To demonstrate the application of this research, specic examples from Lithuania
are submitted for consideration.
2010 Elsevier Ltd. All rights reserved.

Introduction
Various methods and models are being applied today in con-
struction and real estate and its separate segments worldwide.
These include econometrics, e.g., Keynesian models, time-series
analysis using multiple regression, BoxJenkins analysis, time-
varying parameter model, duration statistical model, multivariate
logit model, competing-risks hazard models with time-varying
covariates and the dummy variable approach. Operations research
are also applied, e.g., statistical analysis, discriminant analysis
(Haslem et al., 1992), logit and probit regression models (Canbas
et al., 2005), articial neural network models such as fuzzy clus-
tering and self-organizing neural networks (Alam et al., 2000),
the back-propagation neural networks model (Tam, 1991), mul-
tiple criteria decision-making (Pasiouras et al., 2010; Niemira and
Corresponding author. Tel.: +370 68512218; fax: +370 52700112.
E-mail address: Arturas.Kaklauskas@st.vgtu.lt (A. Kaklauskas).
Saaty, 2004; Garca et al., in press), articial intelligence such as the
support vector machine (Boyacioglu et al., 2008), k-nearest neigh-
bor algorithm (Tam, 1991), decision tree (Frydman et al., 1985)
and others. Technical approaches of operations research include
decision support systems (Gao and Xu, 2009; Pasiouras et al.,
2010; Chen et al., 2010), expert systems (Lin, 2009), mathematical
programming (Siriopoulos and Tziogkidis, 2010) and multicrite-
ria decision methods (Pasiouras et al., 2010). These are all applied
for crisis management in different areas of construction and real
estate.
A fair amount of research worldwide has applied econometric
methods to explain and to model crises in construction and real
estate (e.g., Minsky, 2008; Nishiyama, 2006; Liow and Webb, 2009;
Aizenman and Jinjarak, 2009; Aizenman et al., 2010; Gan, 2004).
Some are briey analyzed below to serve as examples.
Most practitioners in nancial markets tend to agree that posi-
tive or negative asset price bubbles generally associate with large
cyclical swings in the willingness of investors to bear risk. The eco-
nomic foundations of this view can be found in the post-Keynesian

0264-8377/$ see front matter 2010 Elsevier Ltd. All rights reserved.
doi:10.1016/j.landusepol.2010.06.008
 A. Kaklauskas et al. / Land Use Policy 28 (2011) 280293
models of economic and nancial instability and of behavioral
nance (Minsky, 2008).
Liow and Webb (2009) investigate common factors in the secu-
ritized real estate markets of the Untied States, United Kingdom,
Hong Kong and Singapore. The results, although preliminary, are
indicative suggesting more studies to explore how common fac-
tors in joint with a local market portfolio could help in explaining
the return-generating process of securitized real estate (Liow and
Webb, 2009).
Aizenman and Jinjarak (2009) nd a robust, positive association
between current account decits and the appreciation of the real
estate prices/(GDP deator). A one standard deviation increase in
currently lagging account decits associates with real estate prices
appreciating by 10 percent, when controlling for lagged GDP/capita
growth, ination, nancial depth, urban population growth and the
real interest rate. These authors nd evidence of a decline over time
in the cross-country variation of the real estate/(GDP deator) that
is consistent with the growing globalization of national real estate
markets among OECD countries.
Real estate prices can deviate from their fundamental values
due to rigid supply, heterogeneity in quality and various market
imperfections which have two contrasting effects on bank sta-
bility. Higher prices increase the values of the collateral and the
net wealth of borrowers thusly reducing the likelihood of credit
defaults. In contrast persistent deviations from fundamental val-
ues may encourage banks to select increasingly risky creditors to
expand their loan portfolios; consequently, this increases bank dis-
tress probabilities (Aizenman et al., 2010). Aizenman and Jinjarak
(2010) tested these hypotheses using unique data on real estate
markets and banks in Germany. House price deviations contribute
to bank instability, but nominal housing price developments do
not. This nding corroborates the signicance of fundamental real
estate value deviations when assessing bank stability, rather than
employing merely price levels or changes alone (Aizenman and
Jinjarak, 2010).
Gan (2004) examines the relationship between the banking
market structure and nancial stability. This scholar employed data
on thrifts, a type of banking institution specializing in residential
mortgage lending, to test two related hypotheses. The rst is that
competition reduces franchise value, and reduced franchise value
induces risk taking. The test of the second hypothesis employs pre-
dictions that, when hit by an exogenous shock, the slope of risk
with respect to franchise value becomes more negative, because
thrifts adopt bang-bang strategies and choose minimal or max-
imal risk. Gan (2004) nds evidence supporting both hypotheses
by using the Texas real estate collapse in the 1980s as a natural
experiment.
One aspect must be noted. All the above-mentioned researchers,
who are from various countries, analyzed crises in the construction
and real estate sector. However, they did not consider the research
object that the research presented here analyzes (see section Con-
struction and real estate (CARE) crisis management model). This
research object may be described as a life cycle of the construction
and real estate industry that includes the stakeholders involved
and the micro-, meso- and macro-environments which impact a
life cycle in some particular manner, thusly forming an integral,
whole entity. This formulated research object underwent complex
analysis performed with the help of the multiple criteria project
analysis, a new method especially developed for this purpose.
The multiple criteria decision-making method, developed by
the authors of this paper, has already been applied for resolving
various, construction and real estate sector issues (Kaklauskas et
al., 2005, 2006, 2007a,b; Zavadskas et al., 1994, 2004).
The structure of this paper is in seven sections. Following this
section, section Crisis management aspects in construction and
281
real estate describes aspects of crisis management in the con-
struction and real estate sector. Section Construction and real
estate (CARE) crisis management model presents a sketch of the
construction and real estate (hereafter CARE) crisis management
model. Section Macro-level global development trend identica-
tion provides an identication of macro-level, global development
trends (general regularities). Section Recession mitigation mea-
sures suggested in the EU and USA presents some recession
mitigation measures as suggested in the EU and the USA. Section
Macro-level recommendations for Lithuania in particular sub-
mits certain macro-level recommendations for Lithuania. Finally
section Conclusions contains concluding remarks.
Crisis management aspects in construction and real estate
Different countries have different priorities and adopt various
approaches for crisis management in construction and real estate.
Thus it is not surprising that different countries have widely diver-
gent views and interpretations which signify economic, market,
legal, institutional, technological, technical, cultural, psychological
and other differences. Furthermore not all countries understand
construction and real estate crisis management in the same way;
thus they adopt differing strategies.
The traditional analysis of a crisis in construction and real estate
is based on economic, legal/regulatory, institutional and political
aspects. The social, cultural, ethical, psychological and educational
aspects of crisis management tend to receive less attention. To per-
form an integrated analysis of the life cycle of a crisis in construction
and real estate, the cycle must be analyzed in an integrated manner
based on a system of criteria (see Fig. 1). Such criteria are briey
analyzed below.
Economic (or business) indicators include various indices, earn-
ings reports and economic summaries regarding matters such as
unemployment, housing starts, consumer price index (a measure
for ination), industrial production, bankruptcies, gross domestic
product (GDP), retail sales, stock market prices and money supply
changes. Economic indicators are primarily studied in a branch of
macro-economics called business cycles (Gnthner et al., 2007).
Additionally the theory and practice of economics have not
made progress in providing an unambiguous answer to what
should be done. For example, there are a number of experts in
doubt as to whether or not the general demand stimulation mea-
sures that Franklin Delano Roosevelt applied to ght the depression
were effective. Experts claim it was the war that actually helped the
country out of the depression.
Currently various interrelated and interdependent economic
and nancial processes (bankruptcies, unemployment, increasing
amounts of bad bank loans, decreasing salaries and falls in real
estate prices and various expectations) are undergoing sudden
changes. These processes are a reverse sequence of the events
observed a few years ago.
The sudden collapse of Asian economies during the 1997 nan-
cial crisis has been the subject of many studies, but most of these
studies focus on economic fundamentals (Lu and So, 2005).
Some industries undergo signicant cyclical uctuations in
production, jobs and sales. Such industries include construction,
steel manufacturing and the aerospace industry. The US aerospace
industry incurs prot losses of up to 40 percent as a consequence
of the rather cyclical uctuations in the US economy (Seidl and
Kleiner, 1999). Fluctuations in product sales balancing at a level of
20 percent are customary in some areas of the construction indus-
try (Yisa et al., 1996). It has been observed that the characteristic
cycles of boom and recession related to the development of the con-
struction industry repeat approximately every 10 years (Yisa et al.,
282 A. Kaklauskas et al. / Land Use Policy 28 (2011) 280293
Fig. 1. Aspects of crisis management in construction and real estate.
1996). The companies which take such cycles for granted and con-
sider them part of reality manage to prepare for future recessions
during boom times. Such companies often employ long-term man-
agement strategies which help to survive a recession more easily
(Lovelock, 1997; Sheridan, 1997).
The general view was that the phenomenon of either type of
cycle cannot be explained without referencing the other. This close
relationship implies that, in the event an external shock occurs, a
strong impact will be felt by the general economy as well as by the
building (or construction) industry. Public and private sectors will
drastically reduce spending on construction during periods of eco-
nomic austerity. Since such capital investments are mostly massive
and expensive, they become the likely targets for omission or post-
ponement. Intervention analysis is clearly appropriate, due to its
robustness, as a modeling technique for time series in construction
in the context of assessing the effects of an external shock. Such
effects need to be examined in a detailed and accurate manner to
enable policymakers to learn and to make allowances for future
similar occurrences and to demonstration more sophisticated for-
ward planning (Goh, 2005).
Chowdhry and Goyal (2000) provide evidence for the argu-
ment that the crisis reects institutional inefciencies within Asian
economies. Since the real estate market is closely linked to the
nancial stability of any economy, it is hoped that these Asian expe-
riences can shed light on how the lending process for real estate
loans could be perfected to help the real estate market mature (Lu
and So, 2005).
Quigley (2001) argues that a crisis can partly be attributed to a
combination of outmoded banking practices and an immature real
estate market.
The globalization of nancial markets is affecting real estate
markets. From 1985 to 1994, a great many countries experienced
strong real estate booms that peaked around 1989 followed by
severe asset price deation and output contraction that usually
lasted until 1994 (Renaud, 1997). The research by Renaud (1997)
follows three threads of thought: What triggered this rst global
cycle? What has been its impact? Are there lessons to be learned
by countries that are not yet fully integrated into global capital
markets, such as the semi-reformed socialist economies, newly
industrialized economies and other developing countries?
The European construction market is far from homogenous. The
current situation and prospects of each member state depends
on its initial situation (regarding its needs, demographic trends,
economic fundamentals and such), on whether or not real estate
market corrections are recent, on its national economys specic
exposure to the nancial and economic crises and, nally, on the
extent that recovery measures succeed and operate in the construc-
tion sector (Detemmerman, 2009).
The general economic recession has caused increasing distrust
of other market members in business relations. A year ago, the CEO
of a construction company could verbally agree on the scope of
work with a client and start preparing documentation as well as
placing orders for materials. Today, however, even those contract-
ing parties who know each other well do not take any actions until
a contract is signed. Settlements between companies get stuck due
to the lack of circulating assets. Quite a few CEOs prefer litigation
to a short-term bank loan due to its one-third price increase over a
year.
The results of research by Ocal et al. (2006) indicate that govern-
mental policy and unstable market conditions mainly caused the
2001 economic crisis for Turkish construction companies. Mean-
while only a few companies in Turkey applied systematic crisis
management at a scope which depended on a companys size and
structure. Therefore a sense of panic and helplessness was com-
mon throughout the industry at this time. There is an established
relationship between the use of corporate crisis management and
the behaviors of top managers during the 2001 economic crisis.
In addition the efciency coefcient values prove that companies
which did not employ crisis management measures suffered from
greater chaos in comparison with other companies that did employ
such measures. A survey of managers on their priorities at the end
of the 2001 economic crisis showed that almost all respondents
wanted to change their organizational structures and enter new
markets. Moreover 76 percent of the respondents stated that they
analyzed the strengths and weaknesses of their companies after
the crisis, and only 58 percent claimed they had feedback mecha-
nisms in place to improve corporate systems based on the lessons
learned during the crisis.
The personnel of any company suffers from crisis-related social
and psychological tensions, the same as the society at large does.
Such tensions relate to a lacks of information, security and social
guarantees as well as the fear of future difculties. To ensure
the social security of their employees, corporate top managers
should foresee funds for salaries and compensations or employee
retraining possibilities as early as during the preparation stage of a
business plan.
A simple conversation with employees about the current situ-
ation and possible solutions might reduce psychological tensions.
 A. Kaklauskas et al. / Land Use Policy 28 (2011) 280293
For example, a top manager who supervised 75 employees took
an autocratic approach and personally determined the deductions
from the salary of each meanwhile prohibiting any discussions on
this topic. The result was a mere 10 percent reduction in the salary
fund and vast, silent employee discontent. Top managers of another
company with 150 employees suggested two options for discus-
sion: either to lay off part of the staff or to cut everyones salary and
make the work-week shorter, thereby preserving jobs. The second
variant was the most popular. The result was an up to 20 percent
reduction in the salary fund and a positive psychological climate
among the personnel.
Real estate buyer and seller behaviors during the crisis depend
on different psychological factors. According to Simonson (2008),
emotional stress almost always follows nancial problems which
can lead to more complicated psychological effects.
Any company should assess socio-cultural differences when
making a decision to invest in another country to avoid the sorts
of mistakes that Rover made in Bulgaria in 1990. Rover managers
failed sufciently to consider the fact the Bulgarian society and
its state ofcials still have deep, psychological trails of communist
ideology, even after several decades (Elenkov and Fileva, 2006).
When a crisis hits, an organizations corporate culture affects
its organizational efciency. According to Montana and Charnov
(2008), corporate culture values inuence the ethical standards
within a corporation as well as the behaviors of its managers. New
employees joining an organization might modify a corporate cul-
ture. For example, a new project manager with specic expertise on
behaviors necessary for resolving crisis-related construction prob-
lems might affect the culture of the organization as a whole.
With stock markets plummeting, nancial institutions crashing
and governments on both sides of the Atlantic bailing out failing
companies, the prospects for investors, the nancial community
and even tax payers do not look good. Plus there are the likely
effects from other sectors which are almost certain to result in job
losses. The fall-out from the current market turmoil is going to be
widely felt (Ethics and Financial Crisis, 2008). A discussion about
economic or nancial ethics is not necessarily about violations of
the law. The collapse of Wall Street will not necessarily result in
indictments and prosecutions of any corporate executives. Ethics
have a lot more to do with judgments and decision-making. Ethics
are obviously sorely lacking considering our current economic cri-
sis (Longstaff, 2008). In this context, ethical issues become more
and more signicant, e.g., how theories of ethics may help markets
work in an effective, fair and, ultimately, secure manner.
The fact that one-third of the 500 companies listed as successful
in 1970 did not appear in the equivalent, 1983 list indicates that a
failure to adjust to changing conditions, indecision and ustering
determine the collapse of an organization. Just like an active life
increases life expectancy, 66 percent of the organizations facing
extinction survived more than a decade because they changed and
learned (Montuori, 2000).
Successful strategies for construction and real estate crisis
management should be more or less compatible with soci-
etal situations (economic, political, legal/regulatory, technological,
technical, organizational, managerial, institutional, social, cultural,
ethical, psychological, educational, environmental and other situa-
tions) as well as condence in the country under consideration.
A varied spectrum of strategies can be launched; however, any
strategy must bear in mind the mix of inuencing factors and the
relative emphasis such factors. These will depend on overall local
conditions.
Therefore the best construction and real estate crisis manage-
ment strategy cannot be merely copied from another country.
Strategies may only be adapted in the actual economic, social, polit-
ical, legislative/regulatory and provisional situation of a resident
283
country. There is no such thing as a single management strategy to
suit all societies and/or one that is applicable in all countries.
The model of crisis management for construction and real estate
in Lithuania suggested by this research is based on the presumption
that the efciency of crisis management in construction and real
estate depends on many micro-, meso- and macro-level variables.
The presence of specic micro-, meso- and macro-level variable
factors immediately imposes objective limitations for efcient cri-
sis management. The functions of crisis management must be
performed within the bounds of these objective limitations with
utmost efciency. This study involved performing a complex analy-
sis of the micro-, meso- and macro-environmental factors affecting
construction and real estate in Lithuania with the aim of producing
a rational, crisis management model for Lithuanias development
and presenting recommendations on increasing the countrys com-
petitive capacity.
Construction and real estate (CARE) crisis management
model
The aim of this research was to produce a CARE crisis man-
agement model for Lithuania by performing a complex analysis
of the micro-, meso- and macro-environmental factors affecting
it and presenting recommendations on increasing its competitive
capacity. The research was performed by studying the expertise of
advanced industrial economies and by adapting such to Lithuania
while taking into consideration its specic history, development
level, needs and traditions. A simulation was performed by choos-
ing rational micro-, meso- and macro-factors which provide insight
into the development of an effective environment for the CARE
crisis management model.
The level of efciency and the scope of activities in the CARE
crisis management model depend on many micro-, meso- and
macro-level variable factors and on the possibility of optimizing
all these variable factors. The main objective of this model is to
analyze the best experiences in the eld of CARE crisis manage-
ment, to compare it to the present situation in a particular country
and, thereby, to present specic recommendations. This particular
case analyzed the development perspectives of Lithuania.
The word, model, implies a system of game rules by which
CARE crisis management could be used to its best advantage for
Lithuanias development.
Parties interested in the CARE crisis management model can-
not correct or alter the micro-, meso- and macro-level variables.
However, they can delve into the essence of such effects and take
these into consideration in their operations. Interested parties can
organize their present and future activities more successfully by
knowing the environment that affects their projects.
This research includes the following six stages.
Stage I A comparative description is written on CARE crisis man-
agement in developed countries and in Lithuania which
includes:
A system of criteria that characterizes crisis management ef-
ciency as established by relevant literature and expert methods.
A description based on this system of criteria in conceptual (tex-
tual, graphical, numerical, etc.) and quantitative forms on the
present state of crisis management in developed countries and
in Lithuania.
Stage II A comparison and contrast of CARE crisis management in
developed countries and in Lithuania are performed which
include:
284 A. Kaklauskas et al. / Land Use Policy 28 (2011) 280293
An identication of global development trends (general regular-
ities) in crisis management.
An identication of crisis management differences between
developed countries and Lithuania.
A determination of the pluses and minuses of these differences
for Lithuania.
Establishment of the best crisis management practice for Lithua-
nia based on actual conditions.
An estimation of the deviation between the knowledge that
stakeholders have about the best practices worldwide and their
practices-in-use.
Stage III Some general recommendations are developed on how
to improve efciency levels for CARE stakeholders and
construction (real estate) rms.
Stage IV Certain recommendations are submitted for CARE stake-
holders including construction (real estate) rms. Each
general recommendation proposed in Stage III contains
several specic alternatives.
Stage V A multiple criteria analysis is performed on the compo-
nents of CARE crisis management, and the most efcient
version of the life cycle of crisis management is selected.
Next the obtained compatible and rational components of
one type of crisis management are joined into a full, crisis
management process.
Stage VI Transformational learning is performed, and the men-
tality and actual behavior in practice are redesigned as
follows:
Construction (real estate) stakeholders (rms) become aware and
conceptualize their practice-in-use.
Construction (real estate) stakeholders (rms) become aware and
conceptualize their knowledge of the best practices worldwide.
Construction (real estate) stakeholders (rms) estimate the devi-
ation between their knowledge of best practices worldwide and
their own practice-in-use; thereby best practice learning takes
place.
Best practice actions are implemented (understanding what
recurring motives caused the initial stakeholder behaviors and
redesigning their core thought and behavioral patterns).
Transformational learning takes place (acquiring new patterns
of technological, social, ethical and other behaviors and a bet-
ter understanding of how to interact with the micro-, meso- and
macro-environments); thereby behavior is redesigned.
To demonstrate the components of the model under discus-
sion in more detail, the following type of analysis can serve as an
example:
- Identifying global development trends (general regularities).
- Identifying measures for recession mitigation as suggested in the
EU and the USA.
- Submitting recommendations for Lithuania in particular.
The above model has already been applied for the develop-
ment of Lithuanians CARE industries as attested in papers by
different authors (Goh, 2005; Zavadskas and Kaklauskas, 2005,
2007, 2008; Zavadskas et al., 2005, 2007a,b; Ambrasas and
Stankevicius, 2007; Banaitis and Banaitiene, 2007; Diskiene et al.,
2008; Girdzijauskas, 2008; Grundey, 2008; Kavaliauskas, 2008;
Melnikas, 2008; Kaklauskas et al., 2009a,b; Turskis et al., 2009).
Macro-level global development trend identication
The research under discussion has helped to determine various,
macro-level global development trends related to CARE crisis man-
agement. Such trends include economic, political, legal/regulatory,
technological, institutional, social, cultural, ethical, psychological,
educational and environmental aspects as well as the condence-
inspiring. Macro-environments directly impact crisis management
challenges. They may facilitate crisis management or, on the con-
trary, they may create constraints. The comparative quantitative
and conceptual analysis of crisis management carried out in devel-
oped countries and in Lithuania allowed an identication of areas
where the situation in Lithuania is comparable to, partly com-
parable to or quite different from the levels attained in foreign
developed countries. The data from this quantitative and concep-
tual analysis were employed for identifying crisis management
trends in Western Europe and the USA as well as for providing
certain recommendations for Lithuania.
The macro-economic effects on European CARE crisis manage-
ment can be described as follows (Detemmerman, 2009):
- The situation varies signicantly from country to country (by
initial market state and long-term trends, real estate market
corrections, effects of the nancial crisis, effects of the overall
recession, effectiveness of governmental recovery measures).
- The economic downturn has a delayed impact on the construction
sector.
- Redundancies appear.
- A negative impact on the sustainability trend is possible.
The expanding real estate bubble revealed a number of world-
wide trends. The increase in home ownership exceeded the natural
market rate. Much of the public believed that housing prices would
never fall. Credit standards were too loose at the peak of the bubble.
Would it have been more efcient to invest in technology, manu-
facturing, agriculture, education or the like? These factors also have
the following subprime crisis implications (Renaud, 1997):
- Lack of condence means people are less likely to put their sav-
ings in banks.
- Less funding by banks means it is harder to obtain credit/loans
for both households and businesses.
- Less investment means slower growth in the future.
A brief analysis proceeds of these several macro-level, world-
wide trends in CARE crisis management:
- Low interest rate environment
- Taxation system
- GDP share of construction
- Wages and salaries in construction
- Housing starts
- Construction costs
- Consumer condence index
- Housing affordability index
- Harmonized index of consumer prices
- Demand for construction
- Construction regulations, rigidity of employment and Law on
Public Procurement
- Corruption
- Positive aspects of the current crisis
- Political stability
- Global and nancial crisis due to a crisis of values
- Tensions in society and government and others
 A. Kaklauskas et al. / Land Use Policy 28 (2011) 280293
The U.S. economy was experiencing a low interest rate environ-
ment, both because of large capital inows from abroad, especially
from Asian countries, and because the Federal Reserve had adopted
a lax interest rate policy. Asian countries bought U.S. securities both
to peg the exchange rates at an export-friendly level and to hedge
against a depreciation of their own currencies against the dollar,
a lesson learned from the Southeast Asian crisis of the late-1990s.
The banking system underwent an important transformation. The
traditional banking model, in which the issuing banks hold loans
until they are repaid, was replaced by the originate and distribute
banking model, in which loans are pooled, tranched, and then
resold via securitization. The creation of new securities facilitated
large capital inows from abroad (Brunnermeier, 2008). Lithuania
was in an equivalent situation. Scandinavian banks provided very
favorable lending conditions for real estate development.
The investigation by Reinhart and Rogoff (2007) of a longer
historical record discovers surprising qualitative and quantitative
parallels with 18 earlier, post-war banking crises in industrialized
countries. Specically the run-up in U.S. equity and housing prices
(which literature on the nancial crisis highlights as the best and
leading indicator for countries experiencing large capital inows)
closely tracks the average of the earlier crises.
Taylor (2008) shows that the decisions on the actual interest
rates fell well below what historical experience would suggest poli-
cies should be. This study thus provides an empirical measure that
the monetary policy was too lax between 2002 and 2004 or too
loose tting, as The Economist puts it. This was an unusually big
deviation from the Taylor rule. There was no greater or more per-
sistent a deviation in the actual Fed policy since the turbulent days
of the 1970s. So there is clearly evidence that there were monetary
excesses during the period leading up to the housing boom and
its subsequent collapse (Taylor, 2008). The experience in Lithuania
shows that, by linking the national currency to the euro, borrowing
increased signicantly on the local market due to rather low inter-
est rates which, in turn, caused the real estate bubble to expand.
The mortgage crisis is a highly volatile problem. EU laws antici-
pate the risk of irresponsible moves by consumers who know little
about nancing. Thus all banking documents include a limit on risk.
Loans that circumvent such a risk are unlawful offenses. Therefore
the young families in Lithuania who lost their homes due to fore-
closures could have grounds for legal suits against the banks, and
banks are very afraid of this.
There is an opinion held in various countries that Lithuania is
a tax haven. For example, Firerush Ventures, a company provid-
ing nancial mediating services which is linked with Tony Blair,
recently gained permits to provide services in Lithuania, Gibral-
tar and Lichtenstein. The British press named these countries as
being tax haven zones. Therefore the Conservatives of Great Britain
demanded an explanation from Labourist T. Blair regarding possi-
ble tax evasion.
Reasonable introduction of a real estate tax and withdrawal of
tax exemptions would encourage more effective real estate usage
and minimize the swelling of the real estate bubble. (This is assum-
ing the potential increase in taxes exceeds the cost of administering
them, and that the government does not wait until a wave of resis-
tance from a furious society hits.)
Tax increases force businesses into the shadow economy. The
Lithuanian shadow economy is expected to still grow by 5 per-
cent in 2010 and reach 22.7 percent of GDP. Thus tax revenues
decrease, and even higher taxes are needed. A closed circle of failure
forms, when the required national budget must be raised. Numer-
ous interrelated factors need to be considered for tax assessments.
For example, an increased income tax in Lithuania would immedi-
ately, negatively impact emigration, foreign investments and labor
costs.
285
Fig. 2. Changing GDP construction share in Lithuania and 27 EU countries (Eurostat).
Public funding of projects ensured growth in the construc-
tion sector of Central and Eastern Europe until mid-2008, where
the sector held a larger share of national GDP compared to its
share in Western European countries. For example, the construc-
tion sector comprises 15 percent of national GDP in the Czech
Republic whereas it is only 6.6 percent in Great Britain (Goh,
2005). Czech construction companies are commissioned to con-
struct essential infrastructure and public buildings (hospitals and
court buildings). Due to the increasing living standards, people
gained opportunities to take out mortgage loans for housing. In
Lithuania, between 2001 and 2008, growth in GDP and in personal
income positively impacted infrastructure investments and private
construction activities (see Fig. 2). Figures from the construction
skills network forecast a slow return to growth in the construction
sector during 20102014. Government and public sector funders
are being urged to take a sustained approach to public sector con-
struction investments.
Gradually the news is getting better. According to the World
Bank (2010), 10 of the new, EU member states should recover from
the crisis; however, their economic growth will not reach pre-crisis
levels. Of these the best 2010 growth rates should occur in Poland (3
percent growth), Slovakia (1.9 percent) and Lithuania (1.6 percent).
GDP very often does not reect the overall economic situation
because, for example, certain items included in the GDP indica-
tor should not be theregovernments of developed countries have
been pumping money into markets over recent years, thus arti-
cially raising their economic indicators. Compensations for new
automobile purchases prompted a great many residents of Europe
and the United States to turn in their old autos in exchange for
new ones. The compensation money coming from national bud-
gets signicantly increased the GDPs of their respective countries.
Many times GDP does not show whether or not all the products
manufactured and sold over a certain time truly indicate economic
improvement.
Experts calculate that a national debt is not dangerous, if it
does not exceed 5060 percent of GDP. Lithuanias debt comprised
28.2 percent in 2009. A heavy debt lessens the ability of economic
recovery. Forecasts indicate that, in 2010, the afuent countries
will have to allocate 6.1 percent of their incomes for interest pay-
ments alone despite that the interest rate consisted of 4.3 percent
in 2007. Lithuanias neighbors had higher debt burdens: in 2009
Latvias debt was 32.6 percent of GDP and Polands 49.8 percent.
Increasing/decreasing demand for construction caused a
rise/fall in construction prices. Such a situation was not only
observed in Lithuania but in other EU countries as well (see Fig. 3).
The construction input price index (CIPI), shown in Fig. 3, covers
buildings and civil engineering works; it is a Laspeyres-type price
index reecting the main input price changes in new constructions
over a denite time period while maintaining the weight struc-
286 A. Kaklauskas et al. / Land Use Policy 28 (2011) 280293
Fig. 3. Gross wages and salaries in construction (a) increase as construction work
increases and (b) decrease during the crisis period (Eurostat; Building, 2010a).
ture of the referenced period. In Lithuania the demand/supply ratio
determined salary changes for people working in construction (see
Fig. 3).
Housing starts in the USA and Lithuania declined sharply during
the crisis (see Fig. 4).
Fig. 5 shows the changes in construction production and in
construction costs for new residential buildings in EU 27, UK and
Lithuania over time.
The consumer condence index turned around in the second
half of 2007 after the rst signs of overheated economies in most
countries following a long period of increase in the EU. The abso-
lute majority of Lithuanias consumers purchase homes on credit.
Mortgage loans are taken for a 3040-year payback period. Each
family must weigh its possibilities, attempt to predict its future
income and assess the risk of job loss prior to taking such a loan.
The consumer condence index wonderfully illustrates the expec-
Fig. 4. New residential building permits granted in Lithuania (no.) and new con-
struction starts index in the USA (Eurostat and U.S. Census Bureau).
Fig. 5. New residential building construction production (a) and construction costs
(b) in EU 27, Lithuania and the UK (Eurostat; Contract Journal, 2009; Building,
2010b).
tations of consumers. The research on consumer condence in
Lithuania has been performed since 2001; however, the index has
never been lower since the study began. From 2001 consumer con-
dence had only improved. In 2006, as Lithuanias economy had
gained momentum, the consumer condence index became posi-
tive. However, barely a year later, during the latter half of 2007, it
began unceasingly plummeting downward until as long as the start
of 2009, when it reached a 55 signicance, the lowest ever over
the entire period of research. The condence index has begun rising
little by little over the past twelve months. The cause for this was
not only the improving macro-economic situation globally but, as
much, the conviction held by Lithuanias people that it cant get
any worse (Fig. 6).
Lithuanias housing affordability index was nearly always the
lowest in comparison with Western European countries. It was not
Fig. 6. Change in consumer expectations over time in the EU, Sweden, UK and
Lithuania (European Commission).
 A. Kaklauskas et al. / Land Use Policy 28 (2011) 280293 287

Fig. 7. Housing Affordability Index changes over time in Ireland, UK, Netherlands, Germany, Spain, Italy France and Lithuania (UniCredit group).

until 20012004, when credit conditions improved and homeown- ing investments (in health and education) which are expected to
ership prices had not begun to rise sharply yet, that it crossed the increase (but not in every EU member state). Civil engineering faces
limit of 100 (whereby 50 percent of disposable income per one a mixed situation. Status quo is expected for the entire EU region.
average household member was sufcient to service a mortgage Nonetheless, civil engineering work will actually increase in some
loan). In 2005, when home ownership prices began rising sharply, EU countries and decrease in others.
the Affordability Index began to drop. In 2007 it was only 63, the The Scandinavian countries neighbor Lithuania and they
lowest among all eight countries under comparison. However, in inuence its public sphere in economic, political, cultural and tech-
2008, when home prices began decreasing and incomes were still nological terms, not to mention values and differing views. There
rising, the Housing Affordability Index took an upward turn. By is much to learn from Swedens lesson, for example, when, in
the end of 2009, the signicance of this index equaled 79.5. The 19921994, a great many people lost jobs and never returned to
index is expected to continue growing in Lithuania due to falling the labor market. Sweden mainly concentrated on long-term wel-
home prices and decreasing interest rates in stages despite the fare payments which apparently impaired the internal worlds of
decreasing incomes of residents (Fig. 7).
Change trends in the harmonized index of consumer prices
(HICP) for housing are similar in EU 27 and Lithuania (see Fig. 8).
HICP for housing is an ination and price stability indicator for the
European Central Bank.
Residential demand is inuenced by a permanently available
income and negatively affected by unemployment. The unemploy-
ment rate in Lithuania is forecast to reach 16.7 percent in 2010
and, in Latvia and Estonia, 20 percent and 14 percent, respec-
tively. Other inuences on residential demand are interest rates
and credit availability (more restrictive conditions are expected),
the state of the market (declining house prices and unsold stock in
some countries) and a potential of residential renovations (possible
if the announced stimulus measures in favor of energy efciency
succeed). The inuences on non-residential real estate are mainly
the business climate (low investment levels) and public build- Fig. 8. HICP for housing change trend similarities in EU 27 and Lithuania (Eurostat).
288 A. Kaklauskas et al. / Land Use Policy 28 (2011) 280293
the jobless. The better alternative might have been to create new
jobs and retrain people.
Key factors for the Swedish nancial crisis in 1992 were (Lu and
So, 2005):
- Fixed exchange rate caused an overvalued krona due to high ina-
tion.
- Liberalized credit market generated competition in the credit
market that eventually started to lead to weakly controlled cred-
its.
- Changed tax reform dramatically increased loan costs, forcing
many to sell property.
- High ination mainly hampered Swedish exports which have
been declining.
Signicant improvements in Lithuania can be achieved by
amending construction regulations, the rigidity of employment
rules and the Law on Public Procurement.
The 2009 World Bank Report places Lithuania in the 77th
position in terms of construction regulations and business attrac-
tiveness. Today there is too much territorial planning in Lithuania
and too many associated regulations. For example, there are seven
effective documents that indicate obligatory requirements when
planning a territory on the Curonian Spit (entered in the UNESCO
World Heritage List).
Doing Business gave Lithuania a very low, 119th position accord-
ing to Rigidity of Employment in 2009. Doing Business assesses
employment rigidity by four components: difculty of hiring and
terminating employees, costs of termination and rigidity of regu-
lating work hours. The especially strict regulations on work hours
contribute the most to the poor score of Rigidity of Employment in
Lithuania.
Lithuanias Law on Public Procurement legalizes the ability to
engage in public procurements by means of:
Open procedure tender
Restricted procedure tender
Competitive dialogue procedure
Published negotiated procedure
Unpublished negotiated procedure
The number of unpublished procurements is among the high-
est in the European Union ranging between 29.9 and 38.3 percent
during 20032008.
The statistics provided by the Public Procurement Ofce under
the Government of the Republic of Lithuania show that unpub-
lished negotiations comprised 31.3 percent of all international
public procurements during the rst three quarters of 2009. How-
ever, such procurements should be the rarest occurring types
because these are the poorest at assuring effective competition,
transparency and legal equality. These are what form a perfect,
little-regulated sphere for corruption to occur. Nonetheless, the
practice in Lithuania indicates a different sort of mindset.
Construction projects planned in Lithuania, especially when
these are public tenders, involve highly complex structures for
drawing contracts and numerous participants. All these provide
ample opportunity for corruption to spread. A Lithuanian com-
pany implementing a project of large scope and value gains the
trust of potential clients and can more readily establish itself in the
market. Such projects are sufciently rare and, especially under
Lithuanias difcult economic conditions, winning such a project
could even determine whether or not a contractor survives in the
market. Such a situation could prompt a company to provide an
unofcial compensation.
As construction work progresses, structures or elements are
always discovered hidden away; i.e., covert work is being under-
taken. Persons who approve job completions and thus issue a
permit to hide them perform a very important function. The
entire construction industry depends on their decisions. Hidden
jobs are difcult to inspect, difcult to assess compliance with
standards and difcult to verify materials used. Additionally this
procedure is expensive. Thus contractors have an interest in using
cheaper materials and fullling jobs incompletely. Meanwhile they
provide unofcial money to encourage a responsible individual to
endorse job completions in conformance with required procedures
and the project plan.
Corruption is discerned in construction everywhere in Lithua-
nia even during its different stages, such as planning, designing,
outsourcing, bidding and even continuing after construction job
completion. During planning and designing, decisions are made
regarding the necessity of the project, whether it is benecial and,
in general, whether it is worthwhile to implement. There are also
various reports, assessments and investigations faced at this stage,
all of which could bring further work on the project to a halt. Only
a few government ofcials approve projects; thus intent to pro-
vide them with unofcial compensations to circumvent this stage
is a possibility. Approval is then possible even when deadlines and
prices have been calculated incorrectly. The head of construction on
a structure is also a convenient target for corruption to gain favor-
able conditions. That way a client can be provided with a project
demonstrating that some certain technology is the best, the most
suitable. Contractors may try to bribe the head of construction to
advise a client that the bribe-providers proposal is the best one.
As per 2009 Transparency International data, the corruption
perceptions index (CPI) for Lithuania is 4.9 (when 10 is the lowest
perceived level of corruption and 0 is the highest for a coun-
try). The CPI was established for 28 EU countries on the basis of
expert assessments, research studies and opinion surveys of busi-
ness people. Lithuania scored in the 23rd position. Denmark has
the least amount of perceived corruption in the EU (CPI = 9.3),
followed by Sweden (9.2), Switzerland (9.0), Finland (8.9) and
the Netherlands (8.9). The only countries with indexes showing
a higher perceived corruption than the CPI index score for Lithua-
nia are Latvia (CPI = 4.5), Slovakia (4.5), Italy (4.3), Bulgaria (3.8),
Greece (3.8) and Rumania (3.8). The views on corruption are clearly
divided in the world. The East is bogged down in corruption,
whereas the West is inclined to buy off those who are bogged
down in Eastern countries to win state contracts and retain
inuence.
A crisis is a cyclical process, and the process of the current crisis
is not all bad. This is substantiated by examples from the research
conducted by the International Monetary Fund.
Accommodations in developed countries did not lose value over
the past decade; the crisis merely trimmed prices for a time to a
certain degree. Such a conclusion should provide optimism because
it shows that the crisis is not as horrible as it seems right now. An
assessment of real estate prices in 52 developed countries shows
that, when compared with 2008 prices, the cost of housing fell on
average by 7 percent during this crisis. Actually prices fell more
in some countries than they did in others. Let us say, the price of
housing in the US fell approximately as much as the derived average
about 7 percent although the crisis hit much more painfully in
Latvia, for example, where the cost of real estate dropped by 60
percent, in Estonia by 40 percent, in Lithuania by 35 percent and in
Great Britain by about 20 percent in comparison with prices in the
spring of 2008. The cost of real estate in Great Britain is still more
expensive at this time than it was during the third quarter of 2003.
Housing prices in Lithuania also only fell to the level they were up
to 2005 (IMF 2009).
 A. Kaklauskas et al. / Land Use Policy 28 (2011) 280293
Housing prices in afuent countries rise constantly for about
6 years expanding by 50 percent on average and then they fall for
approximately 5 years by 24 percent on average in comparison with
the prices reached during the period of the greatest rise. This time
the calculations are even more impressive. First of all, the upward
trend and rise in prices in the afuent countries lasted not 6 years
but about twice as long, and the actual rise in the cost of housing
was not 50 percent but 6070 percent. Meanwhile the average fall
in prices in 2009 reached 7 percent on average in comparison to the
highest prices for housing during the boom period. Prices did not
deate in any of the afuent countries to the point that they would
be lower in 2009 than they were in 2000, even though salaries paid
to people are now higher than they were back then. In other words,
housing is now more accessible for people, because it is necessary
to work fewer years to acquire housing than it was a decade ago
(IMF 2009).
Banks consider political stability, especially under crisis condi-
tions, to be one of the most important indicators when establishing
a countrys credit ratings. The Government of Lithuania paid an
unthinkably high interest rate on money borrowed during the rst
half of 2009 (the peak of the crisis in Lithuania) primarily due to
the risk that Lithuania will be unable to manage its nances. Since
Lithuanias government is currently in an unstable condition, it has
difculties executing any sort of essential reforms which the pub-
lic judges variously. The leading world countries are now talking
about ripening new reforms and a new economic policy. These are
unrealistic for Lithuania, because its unstable government is unable
to undertake long-term, essential reforms and continue them for
any length of time. Nonetheless, there are exceptions, just as there
always are everywhere. For example, due to political traditions,
Italys government sometimes changes several times a year, but
this does not have any signicant effect on its cost of borrowing.
Various experts hold the opinion that the global and nancial
crisis was due to a crisis in values, due to the unbridled desires
of bankers and bank shareholders to get rich quick. Such bankers
and shareholders who were trying to get rich quickly upheld the
laws. Perhaps this is why the President of France, Nicolas Sarkozy,
stated at the 40th anniversary Davos Economic Forum that only a
moralization will save capitalism.
Collapsing companies and rms are part of our Lithuanian real-
ity. The global economic crisis situation is determined both by
nancial tension and by other types of tensions in society and gov-
ernment. This can affect the international community. Even though
attempts are being made to forecast and recommend action plans
when bankruptcy threatens, collapses of organizations spread from
sector to sector.
Other global development trends (general regularities) of the
crisis in construction and real estate in developed countries and in
Lithuania are analogously described in conceptual (textual, graph-
ical, numerical and other) and quantitative forms.
Recession mitigation measures suggested in the EU and USA
A brief review is presented of related measures suggested in the
EU and the US to provide certain recommendations to control the
construction and real estate market crisis in Lithuania as best as
possible.
Several important components that contributed to the resolu-
tion of the Swedish nancial crisis follow (Lu and So, 2005):
Unlimited support for depositors or other counterparties: the
government issued an unlimited guarantee that no depositors
or counterparties of Swedish credit institutions would suffer any
losses.
289
Bank support authority: a new agency was established to imple-
ment support activities and to avoid conicts of interest; this
agency separated from the Ministry of Finance, Central Bank and
the Financial Supervisory Authority.
Strict valuation rules: all bank assets are marked-to-market, and
valuation experts are hired.
No measures to rescue non-nancial companies: support is only
provided via bank and state-owned asset management corpora-
tions.
Extensive use of asset management corporations (AMCs): AMCs
were used to split banks into good and bad parts. The latter trans-
ferred to AMCs, regrouped, improved and sold.
The effects of the 1990 economic crisis led Swedish construc-
tion companies to take a course of corporate expansion. Stronger
companies acquired those going bankrupt and penetrated foreign
markets (Economic Sectors: Construction, 2008). Large construc-
tion companies moved up to 55 percent of their manufacturing to
other countries (mostly to the US).
A country not only regulates the construction process directly
by setting the rules of the game but it is also able to affect
it by the course of its nancial policy. For instance easy credits,
state subsidies and a strong economy brought about the con-
struction investment boom in Sweden in the second half of the
1980s. The boom peaked in 1990 when the number of newly
constructed housing reached 69,600. The decline in construction
during the crisis in the early-1990s was mostly determined by
19901991 reforms oriented towards cancellation of state sub-
sidies. Although the economy normalized, housing construction
remained low: 13,000 housing objects were built in 1999. Later
growth was also insignicant: newly approved, constructed res-
idential housing items numbered below 20,000 in 20002001.
Stabilization in 2002 speeded up new residential construction, and
the number reached 45,300 in 2006, mostly due to growing demand
and prices (Economic Sectors: Construction, 2008).
Various short- and long-term mitigations and prevention mea-
sures have been suggested for the US nancial crisis. Some are
reviewed briey below.
Some of the short-term mitigation/prevention measures to
resolve the US nancial crisis could be named as the following
(Bernanke and Gertler, 1999): Cut business/corporate income tax
rates (the U.S. corporate tax rate is not globally competitive). Cut
individual income taxes (including for high income tax payers who
have capital to invest). Do not rescue any more non-banking opera-
tions (i.e., let the market correct the situation). Do not introduce any
new programs (markets cannot deal with the unpredictable and
arbitrary). Do not waste resources on non-essential government
programs.
Any government should undertake mitigation of the negative
social effects of unemployment as a key, short-term goal, while
consumers and companies as well as investors exaggerate their
negative reactions regarding the economic situation. Although
the crisis is a proper time to cut governmental administration
expenses, it is important to maintain a balance by increasing
expenses for investments, for example, by taking loans to imple-
ment public infrastructure projects. For instance John Maynard
Keynes, who has a vivid imagination, suggests that governments
should not only commission digging trenches but also bury money
deep in underground shafts and later hire people to dig them up.
A few of the long-term mitigation and prevention measures sug-
gested for the US nancial crisis include the following (Bernanke
and Gertler, 1999). Return to originate/hold for residential mort-
gages (do not save irrational competitors such as mutual money
funds). Raise capital requirements for banks (especially start ups).
Make it explicitly clear that the Federal Reserve cannot/will not
290 A. Kaklauskas et al. / Land Use Policy 28 (2011) 280293
save non-banking operations. Stop subsidies for housing (tax pol-
icy). Encourage productive investments by low/neutral tax rates to
increase productivity (tax consumption but not savings). Encour-
age free trade. Privatize Medicare, social security and education
carefully and systematically. Cut the defense costs signicantly by
defending the U.S. but not saving the world. Encourage immi-
gration of productive, hardworking and, especially, well-educated
people. Restore discipline to systems (save more, spend less).
The construction sector is not asking for rescue plans and cer-
tainly not for bailouts. The EU and its member states have realized
the advantages of investments in construction works for achiev-
ing real progress with their recovery plans while, at the same
time, responding to major needs that pre-date the nancial cri-
sis. Construction is part of the solution and not the problem. It is a
labor-intensive, mainly local reactive activity. Low import leakage
and its output, especially with infrastructure and energy efciency
improvements, will fundamentally improve EU competitiveness
in the medium/long-term, as per the EU Commission (and the
USA). The recovery plan of the European Communities proposes
(Detemmerman, 2009):
Increased nancing for climate changes, energy security and
infrastructure investments (EIB, EBRD, structural funds).
D 5 billion investment in the broadband and energy infrastruc-
ture.
Frontload nancing of the TEN-T projects (D 500 million).
Increased EIB interventions (by D 15 billion/yr).
European energy-efcient buildings (an innovation) initiative
worth D 1 billion.
Reduced VAT on housing, green products and services.
Construction related measures in the plans of some EU countries
include the following examples (Detemmerman, 2009):
Germany announced its second recovery plan on January 13, 2009
for spending between D 17 and D 18 billion of D 50 billion on mod-
ernizing federal, regional and local infrastructures (roads, rails,
schools, universities). Some national experts calculated that this
expenditure program should achieve a GDP growth of 0.50.7
points in 2009 and the creation/maintenance of 200,000 jobs. The
rst recovery plan, presented in November 2008 (D 31 billion),
also targeted the construction sector in part but it was considered
insufcient.
Spain will distribute D 8 billion to local authorities to help launch
new public works projects. The objective is to create 200,000 jobs
in a sector which has suffered thousands of job losses since last
year.
France announced a D 10.5 billion public investment effort to add
100,000 social housing units and to extend zero-rate credit for the
rst-time acquisition a dwelling unit amongst other measures.
All EU countries have developed plans to ght the crisis by allo-
cating investments to revive the construction sector. Table 1 gives
the structured summary of measures applied in some countries.
Macro-level recommendations for Lithuania in particular
Several brief macro-level recommendations are offered on the
basis of this research for construction and real estate crisis man-
agement in Lithuania.
- The Bank of Lithuania must make attempts to create a rational
interest rate environment.
Table 1
Measures to revive the construction sector earmarked by EU countries.
Country Main measures
Denmark Reduced interest rates (0.25%) in order to revive the
housing market
Funding of infrastructure and green projects
Construction of social housing
Building refurbishment
Spain Infrastructure projects
Subsidies to the construction sector (total investment into
economic revitalisation makes up EURO 11 billion)
France Euro 26 billion allocated to economic revitalisation
Tax exemptions
Investment into infrastructure
Investment of Euro 1.9 billion into housing construction
and refurbishment
Euro 80 million to refurbish prisons and court buildings
Guarantees for bank loans
Netherlands Euro 6 billion allocated to economic revitalisation
A scheme of guarantees for banks amounting to Euro 200
billion: to revive loan granting
Reduction of VAT for construction sector from 21% to 6%
Thermal insulation and refurbishment of public buildings
Euro 400 million to restructuring of older districts and
refurbishment of public areas
Support for small businesses
Euro 64 million to training and retraining of employees
Accumulation of statistics of people who lose jobs in the
construction sector in order to retain people after the crisis.
Withdrawn decision to increase VAT and excise rates
Reduced tax burden on business
Stimulation of exports
Germany Euro 50 billion allocated for economic revitalisation
Investment into infrastructure projects
Refurbishment of public buildings
Housing refurbishment
Reduction of taxes
Sweden Euro 2.1 billion allocated for economic revitalisation
Education and training to create new jobs
Investment into infrastructure projects
A tax cut of 50% for construction, refurbishment and
modernisation of detached houses
- The system needs to be strengthened by nationalizing losses
as well as by monitoring banks and announcing early warnings
about the state of this sector to achieve nancial stability.
- EU laws on lending based on limiting the risk of irresponsible
moves by consumer who lack understand about nancing must
be instituted.
- Lithuanian governmental and public sector funders are urged
to provide a sustained approach to public sector construction
investments. The mass housing renovation program by the Gov-
ernment of Lithuania involving homeowner contributions must
be implemented in practice and move forward as fast as possible.
This would save the now, mostly failing building sector which
once had the highest share of GDP. Energy efciency improve-
ments by renovating and retrotting existing buildings must be
promoted to attract private investments with specic incentives.
- A reduced VAT for the entire home-building sector must be main-
tained and possibly extended.
- Access to nancing must be facilitated (in particular for SMEs).
There must be assurance that banks actually use the state guar-
antees and funds provided to them for lending to enterprises and
citizens.
- Attempts should be made to minimize the duration of unemploy-
ment for each unemployed person (new investment into jobs,
part-time jobs for several days per week). The longer potential
employees are unemployed, the more their skills (and the psy-
 A. Kaklauskas et al. / Land Use Policy 28 (2011) 280293
chological states of such persons and their families) deteriorate
along with their market value.
- Fiscal stimulation reaching at least 2 percent of GDP is required to
avoid a global recession, as per the International Monetary Fund.
- Amendments of construction regulations, rigidity of employment
and Law on Public Procurement can achieve quite a few, sig-
nicant improvements in Lithuania. Administrative and public
procurement procedures must be accelerated, in particular, the
time necessary for obtaining decisions, permits, certicates and
such from public authorities to speed up commencement of large-
scale public projects. This has already been proposed within the
EU and in some national recovery plans for 2009 and 2010, and
public procurement directives have been provided. Nonetheless,
the principle of setting deadlines to allow for submission of high
quality tenders must not be jeopardized under the pretext of
urgency.
- Lithuanias business environment must be improved by reducing
the burden of red tape on business by up to 30 percent within the
coming 2 years. Plans include reduction in the scope of licensed
activities, liquidation and merger of institutions that duplicate
controls on business, easements on business incorporation and
liquidation procedures and introduction of electronic registration
of companies. Attempts are also being made to abandon the prac-
tice requiring businesses to submit the same data several times
to different state institutions.
- Procedures for granting EU funds must be accelerated and
simplied. The control of the speed and expedience of fund
granting must come from the highest level. Lithuanian busi-
nesses are able to receive funds in advance or, otherwise,
funds are transferred upon submission of invoices for performed
work.
- Projects which are already in the pipeline need to be completed.
Invest in the infrastructure by giving priority to projects already
funded and ready to start.
- European public policy standards must be introduced and its legal
acts and values put in order. These are among the most important
tasks Lithuania still faces.
- Corruption must be reduced at all levels of the construction and
real estate industry (even during different stages such as plan-
ning, designing, outsourcing, bidding and even continuing after
construction jobs are completed).
- A more sustainable political stability in Lithuania must be
ensured and more efforts must be made to accomplish this.
Political storms negatively affect Lithuanias economy, because
investors fear political uncertainties. Meanwhile such storms also
negatively affect the psychological and moral states of the coun-
trys residents. An unstable government generally means stalled
reforms, investment downturns and lower credit ratings for that
country.
- Capitalization of business, not speculations, is necessary.
- New methods must be developed for crisis forecasting and mod-
eling.
- The best global practices of crisis management (economic, polit-
ical, legal/regulatory, technological, institutional, social, cultural,
ethical, psychological, educational and environmental) require
wider promotion and implementation in all areas of the construc-
tion and real estate industry.
- Criteria for consumer choices must change during the crisis.
Entrepreneurs need to segment the market according to the emo-
tional responses of clients to the crisis (some economize a great
deal, whereas others have not done so yet). An example could be
a company selling construction equipment and machinery that
strengthens its rental segment.
- Reduction of the psychological tension and panic related to a
coming crisis. Panics are all bad, because nancial institutions
291
borrow short and lend long. Panic creates liquidity risks for all.
Acute and chronic stresses need to be avoided.
- A corporate culture needs to adapt to requirements caused by the
crisis involving an integrated entirety of values (customs, tradi-
tions and meanings, i.e., the character of an organization) as fast
as possible.
- Organizations need to sense a greater social responsibility in
regard to their employees.
- The psychological climate needs to be rationalized to encourage
the groups of main concern to behave in a reasonable manner.
The focus needs to be more on emotional stress and possibilities
to minimize it during the crisis.
- An ethical point of view should be more fully implemented into
decision-making.
- Concerned groups need to be educated on the history and conse-
quences of crisis, and possible methods of resolution need to be
offered more actively.
- Macro-environmental conditions must be made more objective
to limit diverse stakeholder groups from inating a real estate
bubble. A large number of societal groups were interested in
ignoring the swelling of the real estate bubble. Bank managers
were paid solid bonuses for it. The authorities enjoyed increas-
ing revenues from VAT due to the swollen consumption which
highly improved the economic indices and lled up the state
budget. Construction companies worked as much as possible
due to the willingness of banks to nance up to 80 percent of
building costs and then back away from the bank repayment
problems. Buyers were not afraid to take increasingly larger loans
from banks because they were encouraged by 2030 percent
greater salaries and wrongly assessed the future prospects of their
incomes.
Some of these suggestions can contradict each other at a certain
level, just like the life itself does but they are worthy of considera-
tion nevertheless.
Conclusions
Researchers from various countries engaged in the analysis
of the crisis in construction and real estate and its separate
segments (see section Introduction). However, they did not
consider the research object being analyzed by the authors of
the present research (see section Construction and real estate
(CARE) crisis management model). This object may be described
as a life cycle of the construction and real estate industry
including involved stakeholders and the micro-, meso- and macro-
environments, all of which have a particular impact on making
an integral whole. A complex analysis of the research object was
formulated with the help of the new multiple criteria project
analysis method that was especially developed for this purpose.
Section Macro-level global development trend identication pro-
vided an identication of global development trends (general
regularities) at the macro-level. Section Recession mitigation
measures suggested in the EU and USA presented certain mea-
sures for recession mitigation as suggested in the EU and USA.
Particular recommendations for Lithuania at the macro-level
appear in section Macro-level recommendations for Lithuania in
particular.
Acknowledgements
We thank the anonymous referees of The International Journal of
Land Use Policy for valuable comments and suggestions. We extend
292 A. Kaklauskas et al. / Land Use Policy 28 (2011) 280293
our gratitude to Vijole Arbas for her translating and editing the
English language version of this work.
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