No Price Like Home: Global House Prices, 1870–2012

Abstract

How have house prices evolved in the long-run? This paper presents annual house price indices for 14 advanced economies since 1870. Based on extensive data collection, we are able to show for the first time that house prices in most industrial economies stayed constant in real terms from the 19th to the mid-20th century, but rose sharply in recent decades. Land prices, not construction costs, hold the key to understanding the trajectory of house prices in the long-run. Residential land prices have surged in the second half of the 20th century, but did not increase meaningfully before. We argue that before World War II dramatic reductions in transport costs expanded the supply of land and suppressed land prices. Since the mid-20th century, comparably large land-augmenting reductions in transport costs no longer occurred. Increased regulations on land use further inhibited the utilization of additional land, while rising expenditure shares for housing services increased demand.

The Rate of Return on Everything, 1870–2015

“…We combine the long-run house price series presented by Knoll, Schularick, and Steger (2017) with a novel dataset on rents from Knoll (2016). For most countries, the rent series rely on the rent components of the cost of living of consumer price indices as constructed by national statistical offices and combine them with information from other sources to create long-run series reaching back to the late 19th century.…”

“…56 We can then construct a time series of returns by combining separate information from a country-specific house price index series (HPI t /HPI 0 ) and a country-specific rent index series (RI t /RI 0 ). For these indices we rely on prior work on housing prices (Knoll, Schularick, and Steger, 2017) and new data on rents (Knoll, 2016). This method assumes that the indices cover a representative portfolio of houses.…”

“…We discuss each of these in turn in this section. Our focus throughout is mainly on rental yield data, as the accuracy and robustness of the house price series has been extensively discussed in Knoll, Schularick, and Steger (2017) (see also their Online Appendix).…”

“…But there is no previous rate of return database which contains any information on housing returns. Here we build on prior work on house prices (Knoll, Schularick, and Steger, 2017) and new data on rents (Knoll, 2016) to offer an augmented database to track returns on this very important component of the national capital stock.…”

Reversal of migration flows: A fresh look at the German reunification

“…Employing data from the metropolitan area of Michigan, they find that a one percentage point increase in the rate of population growth leads to a 4 housing services is land-intensive and land is a fixed factor that becomes increasingly scarce in a growing economy. Thus, the price of housing services is closely related to the rental rate of land (Knoll, Schularick and Steger, 2016;Grossmann and Steger, 2016). …”