In the comments of my recent post about Manhattan real estate prices during the Great Depression, a regular reader of this blog shared this terrific blog post (and corresponding research paper by Piet Eichholtz) about house prices along the Herengracht canal in Amsterdam from 1628 to 1973. Later it was updated to include up to 2008. It’s a long run house price index.
Probably the first thing you’ll notice is that the index is highly volatile. Amsterdam enters its Golden Age, creates the world’s first stock exchange, and becomes the wealthiest city in the western world – house prices go way up. The tulip mania bubble pops – house prices go way down. It’s not until after World War II that prices sort of start to stabilize and increase, maybe, more consistently.
In nominal dollars, the house price index increases 10x over the study period. But in real dollars most of that disappears. The biennial increase (that’s how the study was done) over the same period of time is just 0.5%. That translates into a doubling of house prices, which may seem quite good, except that remember it’s over a 380 year time period.
The Herengracht canal is a particularly good study because it was and has remained (or so I’m told) a desirable part of Amsterdam. This is an attempt to control for the variable that maybe some of the volatility could be explained by the area simply falling out of favor. (As a quick sidebar, the Herengracht was one of the first canals laid and dug out around the original city center of medieval Amsterdam during its Golden Age.)
Generally, this finding is in line with one that economist Robert J. Shiller famously published a number of years ago where he argued that, when you correct for inflation, home prices actually look remarkably stable over long-run forecasts. In one study, he looked at 100 years of US home prices ending in 1990. Real home prices increased about 0.2% a year. What an outstanding hedge against inflation.
I was searching around trying to find data on long-term real estate prices and I came across a paper by Tom Nicholas and Anna Scherbina called, Real Estate Prices During the Roaring Twenties and the Great Depression.
Here are some stats about Manhattan real estate (from the paper) that you all might find interesting:
- In 1930, Manhattan housed 1.5% of the US population, but had approximately 4% of all US real estate wealth.
- To construct their price indices the authors randomly collected 30 real estate transactions per month in Manhattan between 1920 and 1939. The mean price per square foot in 1929 was $6.91 (year of Black Tuesday). And the mean price per square foot in 1939 – 10 years later – was $2.29.
- Buildings containing a store at grade tended to sell at higher prices. The authors speculate that this could be because a zoning change in 1916 made it difficult to open stores in “residential” areas.
- Buildings with three, four and five storeys tended to sell at a discount. Six storeys or higher and the buildings generally had an elevator, which resulted in higher pricing.
- Manhattan real estate prices reached their highest level in Q3-1929 before falling 67% by 1932. Prices remained more or less flat during the Great Depression.
- If you bought a “typical property” in 1920, it would have retained only 56% of its value (in nominal dollars) by 1939. In fact, it took until 1960 for assessed property values in Manhattan to exceed their pre-Depression pricing.
- An investment in the stock market index during this same time period, 1920-1939, would have outperformed real estate by a factor of 5.2x.
Much of this probably seems hard to believe given the market today. Imagine waiting 40 years for the value of your property to come back.
Photo by jesse orrico on Unsplash
“Every unemployed American is a failure of entrepreneurial imagination.” -Edward Glaeser
At the end of September, economist Edward Glaeser returned to the Manhattan Institute to deliver the 2017 James Q. Wilson Lecture. If you’re a regular reader of this blog, you may remember that he was there in 2016 and delivered a presentation called “The End of Work.”
This year’s talk continues that theme, but focuses on joblessness and economic stagnation in the US Heartland.
The solutions he puts forward are based on a very simple economic model for growth that he refers to as “rules and schools.” Simply put: The rules of a place need to support business and entrepreneurship and the people need to be educated.
One example he gives is of a woman in Detroit who was trying to start a food truck business but had to wait 18 months for a permit. There’s no reason that should happen. He blames the insider restaurant lobby for working to keep competition at bay. The rules are bad. We have similar problems here in Toronto with our food trucks. I think it’s wrong.
He also pokes fun at the Bilbao effect. Yes, Frank Gehry created a beautiful piece of architecture. But did it lower the unemployment rate?
The last thing I’ll mention are his comments regarding Amazon HQ2 because I like how he frames it.
Firstly, Amazon is going select a city that doesn’t need Amazon. It’s going to go where there’s already abundant human capital.
Secondly, “smokestack chasing” is not the right economic development strategy. The key questions should be: How will this benefit our human capital and how many new firms could it create?
If you have an hour, check out Ed Glaeser’s talk. If you can’t see it below, click here.
[youtube https://www.youtube.com/watch?v=e8LvHpRCUYk?rel=0&w=560&h=315]
In the comments of my recent post about Manhattan real estate prices during the Great Depression, a regular reader of this blog shared this terrific blog post (and corresponding research paper by Piet Eichholtz) about house prices along the Herengracht canal in Amsterdam from 1628 to 1973. Later it was updated to include up to 2008. It’s a long run house price index.
Probably the first thing you’ll notice is that the index is highly volatile. Amsterdam enters its Golden Age, creates the world’s first stock exchange, and becomes the wealthiest city in the western world – house prices go way up. The tulip mania bubble pops – house prices go way down. It’s not until after World War II that prices sort of start to stabilize and increase, maybe, more consistently.
In nominal dollars, the house price index increases 10x over the study period. But in real dollars most of that disappears. The biennial increase (that’s how the study was done) over the same period of time is just 0.5%. That translates into a doubling of house prices, which may seem quite good, except that remember it’s over a 380 year time period.
The Herengracht canal is a particularly good study because it was and has remained (or so I’m told) a desirable part of Amsterdam. This is an attempt to control for the variable that maybe some of the volatility could be explained by the area simply falling out of favor. (As a quick sidebar, the Herengracht was one of the first canals laid and dug out around the original city center of medieval Amsterdam during its Golden Age.)
Generally, this finding is in line with one that economist Robert J. Shiller famously published a number of years ago where he argued that, when you correct for inflation, home prices actually look remarkably stable over long-run forecasts. In one study, he looked at 100 years of US home prices ending in 1990. Real home prices increased about 0.2% a year. What an outstanding hedge against inflation.
I was searching around trying to find data on long-term real estate prices and I came across a paper by Tom Nicholas and Anna Scherbina called, Real Estate Prices During the Roaring Twenties and the Great Depression.
Here are some stats about Manhattan real estate (from the paper) that you all might find interesting:
- In 1930, Manhattan housed 1.5% of the US population, but had approximately 4% of all US real estate wealth.
- To construct their price indices the authors randomly collected 30 real estate transactions per month in Manhattan between 1920 and 1939. The mean price per square foot in 1929 was $6.91 (year of Black Tuesday). And the mean price per square foot in 1939 – 10 years later – was $2.29.
- Buildings containing a store at grade tended to sell at higher prices. The authors speculate that this could be because a zoning change in 1916 made it difficult to open stores in “residential” areas.
- Buildings with three, four and five storeys tended to sell at a discount. Six storeys or higher and the buildings generally had an elevator, which resulted in higher pricing.
- Manhattan real estate prices reached their highest level in Q3-1929 before falling 67% by 1932. Prices remained more or less flat during the Great Depression.
- If you bought a “typical property” in 1920, it would have retained only 56% of its value (in nominal dollars) by 1939. In fact, it took until 1960 for assessed property values in Manhattan to exceed their pre-Depression pricing.
- An investment in the stock market index during this same time period, 1920-1939, would have outperformed real estate by a factor of 5.2x.
Much of this probably seems hard to believe given the market today. Imagine waiting 40 years for the value of your property to come back.
Photo by jesse orrico on Unsplash
“Every unemployed American is a failure of entrepreneurial imagination.” -Edward Glaeser
At the end of September, economist Edward Glaeser returned to the Manhattan Institute to deliver the 2017 James Q. Wilson Lecture. If you’re a regular reader of this blog, you may remember that he was there in 2016 and delivered a presentation called “The End of Work.”
This year’s talk continues that theme, but focuses on joblessness and economic stagnation in the US Heartland.
The solutions he puts forward are based on a very simple economic model for growth that he refers to as “rules and schools.” Simply put: The rules of a place need to support business and entrepreneurship and the people need to be educated.
One example he gives is of a woman in Detroit who was trying to start a food truck business but had to wait 18 months for a permit. There’s no reason that should happen. He blames the insider restaurant lobby for working to keep competition at bay. The rules are bad. We have similar problems here in Toronto with our food trucks. I think it’s wrong.
He also pokes fun at the Bilbao effect. Yes, Frank Gehry created a beautiful piece of architecture. But did it lower the unemployment rate?
The last thing I’ll mention are his comments regarding Amazon HQ2 because I like how he frames it.
Firstly, Amazon is going select a city that doesn’t need Amazon. It’s going to go where there’s already abundant human capital.
Secondly, “smokestack chasing” is not the right economic development strategy. The key questions should be: How will this benefit our human capital and how many new firms could it create?
If you have an hour, check out Ed Glaeser’s talk. If you can’t see it below, click here.
[youtube https://www.youtube.com/watch?v=e8LvHpRCUYk?rel=0&w=560&h=315]
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