Robert Shiller has always said no. But Katharina Knoll, Moritz Schularick, and Thomas Steger write,
Real house prices have approximately tripled since 1900, with virtually all of the increase occurring in the second half of the 20th century
Pointer from Mark Thoma. They are looking at house price data from around the world. They say that transportation improved more rapidly before 1950, and that increased the effective supply of land. Since then, the slowdown in transportation improvement and tighter land-use regulations have raised land prices.
I still want to know why their data appears to be so different from Shiller’s.
Real housing prices were stable at about 10% of income for thousands of years, even when no transportation improvements were in the offing. Also, in the period of those transportation improvements, a great deal of urbanization was occurring; the transport improvements enabled people to separate themselves from the site of their food production. It’s only since 1980 that real housing prices have risen in the US. This has coincided with unsustainably rapid rises in financial assets generally, such as stocks and bonds. It’s much more likely that financial bubbles have raised real home prices than that real economic growth systematically tends to raise them. Shiller’s conclusions are the obvious ones from the data and almost certainly right.
Stupid question perhaps, but are they looking at resale prices for the *same* houses over 100 years? Or are they looking at an index over 100 years? Because the houses in the index 100 years ago are very different than the houses making up the index today, obviously. House prices increased (in part, maybe entirely) because houses improved in quality and increased in size.
Moreover, do they adjust for renovation costs? If your house increases in value by 10% but you have spend 10% of the house value in repairs…
Also, housing prices are procyclical, and I think they have a beta that is greater than 1, implying that they rise and fall in value more sharply than does the market.
Lastly, because house prices are linked to the local economy (and your own job), it is a terrible investment, diversification-wise. If the economy sours, you’re hit twice: lose a job (or take a pay cut), and house value falls.
Great point. Indices are useful, but they hardly tell the whole story, and not simply because they summarize. This is why price indices hardly measure reduction in purchasing power due to monetary meddling, or why focusing on “the rich” as a static, distinct group over time is faulty.
It’s entirely too tempting for a Man Of The System to attempt to manipulate the real world of people and behaviors in order to generate “better” numbers like GDP, missing the forest of human flourishing for the trees of necessarily incomplete numerical analysis. They will acknowledge that GDP does not measure well-being, and then proceed directly to optimizing for it.
Just think of the glorious numbers we could enjoy!
AFAIR, Shiller’s long series is a single neighborhood in Boston while on the very next page he shows Cleveland experienced just such real growth in the 70s.
I simply don’t know how you could even calculate this. I live in ahouse built in the 1920s. It has multiple additions that increase the sq ft by (ball park) 33%, it has a new 200 amp electrical and updated wiring instead of knob and tube, a gas furnace instead of coal, isulation instead of no (or far lower quaility insulation). It is hardly the same house, and the sum total changes probably exceed the construction cost of the original. In addition owning the house comes with the costs of maintnence, taxes and insurance, and part of the homes cost comes from the services the town ship provides (school district ect). And finally a substantial number of houses in the neighborhood have been demolished and rebuilt over the past century (and there are a few abandoned lots on the outskirts) – how do you calculate for entire countries what I would have a hard time doing for one small township?
Great point, in line with Jack PQ’s, above. How do housing market analyses account for abandoned homes (total loss), maintenance, upgrades, and replacement costs? For investment purposes, you can’t just look at the prices at which houses change hands.