Proposal preview

Long-Run Real Estate Markets: New measurements, new insights

Real estate is central both to macroeconomic fluctuations, underscored by the Great Recession starting in 2008, and to longer-term trends in wealth and inequality, as highlighted by work such as Piketty (2014) and Rognlie (2015). It is also central to accurately measuring the cost of living and national income historically and to testing theories about city formation and expansion. Nonetheless, there remains a dearth of housing market data prior to the 1970s, thus depriving social scientists of a wealth of case studies from which to draw insights. Moreover, those long-run series that do exist are typically based on small samples and elementary analytical techniques, meaning they may be of limited reliability. For example, housing price trends from the only existing index for the US, by Shiller (2005), have been challenged (see, for example, Nicholas & Scherbina, 2013 and Fishback & Kollman, 2012).
Thus, new research, drawing on methodological and computing advances, could make a significant contribution to our understanding of cycles and trends in real estate and their connection to the wider economy. The proposed session will bring together scholars from around the world, working on different markets, to establish general insights and stylised facts and to develop suggestions for future research priorities. These projects include analyses of residential and commercial real estate, sales and rental segments, and European and North American markets.

Organizer(s)

  • Ronan C Lyons Trinity College Dublin ronan.lyons@tcd.ie Ireland
  • Rowena Gray UC Merced rgray6@ucmerced.edu USA

Session members

  • Jason Barr, Rutgers-Newark
  • Katharina Knoll, Bonn
  • David Chambers, Cambridge
  • Francisco Amaral, Bonn
  • Matthijs Korevaar, Maastricht University School of Business and Economics
  • Eva Steiner, Cornell
  • Sofie Waltl, LISER
  • Christophe Spaenjers, HEC

Discussant(s)

  • Se Yan Peking
  • Kathryn Gary Lund
  • Robert Margo Boston U
  • Wei You Furman
  • Alex Whalley Calgary
  • Devin Bunten FRB

Papers

Panel abstract

Real estate is central both to macroeconomic fluctuations both in recent economic history and over the longer term. It is also central to accurately measuring living standards and testing theories about city formation and expansion. Nonetheless, reliable housing market data prior to the 1970s remains scarce and many series extending before have been challenged, due to the data or methods employed. The proposed session will bring together scholars from around the world, working on long-run real estate using new datasets and methods. These projects include analyses of residential and commercial real estate, sales and rental segments, and European and North American markets. The aim of the session is to establish general insights and stylised facts and to develop suggestions for future research priorities.

1st half

A Long-Run Study of Real Estate Risk and Return - David Chambers, Christophe Spaenjers, Eva Steiner

David Chambers, Christophe Spaenjers, Eva Steiner

We collect data on property holdings from King’s and Trinity College in Cambridge, as well as Christ Church and New College in Oxford for 1901-1970. Specifically, we collect data on acquisitions, dispositions, income and cost, as well as property characteristics, such as property type and location. We then calculate stabilized income, transaction value, and stabilized income yield. Based on this data set, we estimate the time series evolution of total returns for agricultural, commercial and residential real estate held for investment purposes. We first document the shift in the relative importance of the three categories within real estate over time, from agricultural, to residential and eventually commercial property. Furthermore, we analyze the long-term risk and return of U.K. real estate, the relative importance of capital gains and yields to total return and their correlation, cross-predictability, as well as the correlations of returns with economic fundamentals.

We collect data on property holdings from King’s and Trinity College in Cambridge, as well as Christ Church and New College in Oxford for 1901-1970. Specifically, we collect data on acquisitions, dispositions, income and cost, as well as property characteristics, such as property type and location. We then calculate stabilized income, transaction value, and stabilized income yield. Based on this data set, we estimate the time series evolution of total returns for agricultural, commercial and residential real estate held for investment purposes. We first document the shift in the relative importance of the three categories within real estate over time, from agricultural, to residential and eventually commercial property. Furthermore, we analyze the long-term risk and return of U.K. real estate, the relative importance of capital gains and yields to total return and their correlation, cross-predictability, as well as the correlations of returns with economic fundamentals.

Booms and Busts in Housing Markets, Prices and Turnover in Amsterdam

Matthijs Korevaar

Booms and busts in modern housing markets are typically characterized by four puzzling features: short-term momentum in prices, a positive price-turnover relationship, excess volatility of prices relative to fundamentals, but reversion over the longer run. This paper uses a new approach to investigate the origins of these phenomena, with specific attention to the price-turnover relationship: the analysis of historical housing markets based on archival microdata. Using data from more than 150,000 property transactions, I discuss the structure of the Amsterdam housing market and construct an annual house price (1625-1810) and turnover (1582-1810) index: the period of Amsterdam's Golden Age and its later decline. Subsequently, I analyze the dynamics in the market. Despite its very different institutions, the Amsterdam housing market has gone through several long booms and busts, which share all the modern characteristics of such episodes, including a lead-lag relationship between turnover and house prices. Loss aversion and speculation...

Booms and busts in modern housing markets are typically characterized by four puzzling features: short-term momentum in prices, a positive price-turnover relationship, excess volatility of prices relative to fundamentals, but reversion over the longer run. This paper uses a new approach to investigate the origins of these phenomena, with specific attention to the price-turnover relationship: the analysis of historical housing markets based on archival microdata. Using data from more than 150,000 property transactions, I discuss the structure of the Amsterdam housing market and construct an annual house price (1625-1810) and turnover (1582-1810) index: the period of Amsterdam's Golden Age and its later decline. Subsequently, I analyze the dynamics in the market. Despite its very different institutions, the Amsterdam housing market has gone through several long booms and busts, which share all the modern characteristics of such episodes, including a lead-lag relationship between turnover and house prices. Loss aversion and speculation seem to play an important role in driving this relationship, while financing constraints likely do not, given the unpopularity of mortgages in historical Amsterdam.

House Prices in Spain and Portugal

Francisco Amaral

This work presents new data on house prices, rents and construction costs in Spain and Portugal. Spanish data starts in 1870, while Portuguese data starts in 1940. Data is mostly recovered from Registrar´s yearbooks. Both long-run house price indices show a hockey-stick pattern throughout the 20th century, which is consistent with the evidence for other countries. A price decomposition demonstrates that land prices, and not construction costs, have been the main drivers of house prices. A finding which is also consistent with the data from other countries.

This work presents new data on house prices, rents and construction costs in Spain and Portugal. Spanish data starts in 1870, while Portuguese data starts in 1940. Data is mostly recovered from Registrar´s yearbooks. Both long-run house price indices show a hockey-stick pattern throughout the 20th century, which is consistent with the evidence for other countries. A price decomposition demonstrates that land prices, and not construction costs, have been the main drivers of house prices. A finding which is also consistent with the data from other countries.

Historical Rental Prices in St Petersburg

Konstantin Kholodilin, Leonid Limonov, Sofie Waltl

We study housing rents in St. Petersburg between 1880 and 1917 covering an eventful period of Russian and world history: the Russian-Japanese War, the First World War, and the February and October Revolution. Additionally, St. Petersburg was among the first cities introducing a rent control policy in 1915. We collected and digitalised over 5,000 newspaper advertisements for rental units. The exact addresses were geo-coded, which – together with geo-data on the historic road and bridge network and detailed structural characteristics describing the rental units – are used to construct a time-continuous, quality-adjusted, hedonic rent price index making use of spatial smoothing techniques.

We study housing rents in St. Petersburg between 1880 and 1917 covering an eventful period of Russian and world history: the Russian-Japanese War, the First World War, and the February and October Revolution. Additionally, St. Petersburg was among the first cities introducing a rent control policy in 1915. We collected and digitalised over 5,000 newspaper advertisements for rental units. The exact addresses were geo-coded, which – together with geo-data on the historic road and bridge network and detailed structural characteristics describing the rental units – are used to construct a time-continuous, quality-adjusted, hedonic rent price index making use of spatial smoothing techniques.

2nd half

Rents and Welfare in the Second Industrial Revolution

Rowena Gray

This paper presents a new dataset of rental prices for New York City housing for the period 1880-1910, drawn from historical newspaper advertisements. This address-level rental information is geocoded on a historical map of Manhattan Island and thus linked to a very detailed set of locational characteristics. The paper then uses hedonic regression techniques, a standard in the housing literature, to generate a quality-adjusted rental index for those years and to investigate the value of each apartment characteristic and locational amenity/disamenity in the rental market. The aim is to devise new estimates of the urban housing cost and quality around the turn of the twentieth century and to inform measures of the urban standard of living more generally at that time. We can further explore how the housing market functioned in response to changes in building regulation and how costs evolved for consumers at different income levels and living in...

This paper presents a new dataset of rental prices for New York City housing for the period 1880-1910, drawn from historical newspaper advertisements. This address-level rental information is geocoded on a historical map of Manhattan Island and thus linked to a very detailed set of locational characteristics. The paper then uses hedonic regression techniques, a standard in the housing literature, to generate a quality-adjusted rental index for those years and to investigate the value of each apartment characteristic and locational amenity/disamenity in the rental market. The aim is to devise new estimates of the urban housing cost and quality around the turn of the twentieth century and to inform measures of the urban standard of living more generally at that time. We can further explore how the housing market functioned in response to changes in building regulation and how costs evolved for consumers at different income levels and living in different neighborhoods.

150 Years of Land Values in Manhattan

Jason Barr, Fred Smith

Despite the importance of Manhattan in the world economy, there have been relatively few studies of the trajectory of Manhattan land values. Using a newly collected data set on vacant land sales, we estimate the long run return to Manhattan from the Civil War to the present by creating a long run price index that expands upon that of Barr, Smith and Kulkarni (RSUE, 2018). In addition, we estimate the value of different Manhattan neighborhoods over time to see how population growth, zoning, and investments in public transportation have affected the relative prices of different locations across the island.

Despite the importance of Manhattan in the world economy, there have been relatively few studies of the trajectory of Manhattan land values. Using a newly collected data set on vacant land sales, we estimate the long run return to Manhattan from the Civil War to the present by creating a long run price index that expands upon that of Barr, Smith and Kulkarni (RSUE, 2018). In addition, we estimate the value of different Manhattan neighborhoods over time to see how population growth, zoning, and investments in public transportation have affected the relative prices of different locations across the island.

Forgotten Booms and Busts - New Sale and Rental Price Indices for US Housing

Ronan Lyons

This paper introduces new quarterly indices for sale and rental prices of U.S. housing from 1890, using real estate listings for five major metropolitan areas. It does this by using hedonic methods and a dataset of almost 750,000 manually entered real estate listings. This is used to identify local and national booms and busts in the housing market, as well as estimates of the sale-rental housing price ratio at city-level and for the U.S. since 1890. The indices presented here go beyond previous work by systematically capturing dwelling and site attributes, including location. This allows modern methods of index construction, in particular the use of hedonics controlling for location, size and type (in the baseline) and age, site size, utilities and other dwelling features (in extensions). These empirical specifications are applied to datasets of over 130,000 listings for each of Boston, Chicago, Los Angeles, New York and Washington, covering every...

This paper introduces new quarterly indices for sale and rental prices of U.S. housing from 1890, using real estate listings for five major metropolitan areas. It does this by using hedonic methods and a dataset of almost 750,000 manually entered real estate listings. This is used to identify local and national booms and busts in the housing market, as well as estimates of the sale-rental housing price ratio at city-level and for the U.S. since 1890. The indices presented here go beyond previous work by systematically capturing dwelling and site attributes, including location. This allows modern methods of index construction, in particular the use of hedonics controlling for location, size and type (in the baseline) and age, site size, utilities and other dwelling features (in extensions). These empirical specifications are applied to datasets of over 130,000 listings for each of Boston, Chicago, Los Angeles, New York and Washington, covering every year from 1890 to 1990.

Urban Mass Transit and the Returns to Skill

Sun Kyoung Lee

How large are the benefits of improving urban mass transit infrastructure in cities, and how are the gains shared across different skill groups? This proposal exploits a unique historical setting to estimate the impact of urban transportation infrastructure: the introduction of the mass-public transit infrastructure in the late nineteenth and twentieth-century New York City. I use newly collected archival data of real estate sales, industrial activity and linked individual US census data to investigate how urban transit infrastructure differentially affects the welfare of workers with heterogenous skill. I also show how lowering the spatial frictions in the city brings the city’s economic growth through enhanced labor market access.

How large are the benefits of improving urban mass transit infrastructure in cities, and how are the gains shared across different skill groups? This proposal exploits a unique historical setting to estimate the impact of urban transportation infrastructure: the introduction of the mass-public transit infrastructure in the late nineteenth and twentieth-century New York City. I use newly collected archival data of real estate sales, industrial activity and linked individual US census data to investigate how urban transit infrastructure differentially affects the welfare of workers with heterogenous skill. I also show how lowering the spatial frictions in the city brings the city’s economic growth through enhanced labor market access.