Evan Soltas
May 2, 2012

God's Bubble

The strange story of the massive, decade-long boom in church construction

Often the housing bubble of the 2000s becomes the economic equivalent of a morality play. What goes up must come down. The rise and fall of construction went beyond irrational exuberance. It was hubris.

It is somehow fitting, then, to look at an interesting and unusual sideshow in the economic history of the past two decades: the long and massive boom of church construction in the United States.

To put in perspective the magnitude of "God's bubble," religious construction spending rose two-and-a-half fold from 1995 to 2003, and the period of elevated construction spending levels lasted a full decade, from 1998 to 2008. That makes the broader boom in construction spending, which rose roughly 40 percent in 3 years and lasted for only 3 or 4 years at its highs, seem almost puny by comparison. (Of course, total construction spending dwarfs religious construction spending, but the boom of the latter is striking.)

There are a variety of explanations for the boom. Immigration into the United States created religious-minority constituencies which required their own houses of worship. The evangelical movement needed bigger digs -- enter the "megachurch." Religious donations were up due to the strength of the American economy in the 90s. Lending conditions were loose and interest rates were low (or not usurious, at least?). Then there are always more cynical motives: all the other churches were expanding. Even in houses of worship, there is competition.

If the average person building a home during the real-estate boom was blinded by their own optimism, preachers in hard-hats took it to a new level. Said Rev. Laurence A. Gipson of St. Martin's Episcopal in Houston, Texas in October 1999:

There's an excitement...We announced our advance pledges this past Sunday, totalling $15.8 million. We sense we're involved in something really important, and we're going to do this. We're going to do this for God and for our children and for our children's children and those who don't yet know God in Christ. We're building to bless others and to bless ourselves.
Perhaps economists have been overcomplicating our explanation of the housing bubble. What if it boils down to mere faith -- although of a different sort?

The recession and the end of the construction boom hit churches hard. The returns on their investments and donations fell, suddenly making it difficult for churches to finance their expansions. The number of church foreclosure proceedings tripled from 2007 to 2010, according to Reuters. (Question: who forecloses on a church?) As in the broader housing bubble, but worse, lenders significantly underestimated the riskiness of the mortgage loans they were making to churches.

Supercheap, few-questions-asked loans were a temptation even churches could not resist, but now they are paying for their sins as the debt crisis enters the house of God.

Long considered among the safest of borrowers, churches gambled on real estate at a time when credit copiously flowed and lenders were startlingly lax.

Although there is (I think) a lighter side to this story, lest anyone think I am being disrespectful I want to acknowledge that the bust of the religious construction has legitimate social costs which go beyond economic considerations. Many of these churches serve as anchors of their communities and provide an array of social and support services. Their financial struggles are threats to communities.

Nevertheless, the massive boom and bust in religious construction is a strange historical accident which tells us how delusional optimism, on both the part of the borrower and the lender, contributed to the creation of the housing bubble.