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House Prices since 1870

Katharina Knoll, Moritz Schularick and Thomas Steger have a really nice paper and Vox column looking at house prices for 14 economies from 1870 to 2012. They find that house prices stayed constant from 1870 to circa 1950, but rose strongly in the second half of the twentieth century. They also find that it is increasing land prices, not construction costs, which have driven this increase. Notably, their findings imply that real house price growth has outpaced income growth by a substantial margin.

Strangely, Knoll et al. do not explicitly acknowledge the relationship between the great mortgaging, which Schularick identified in previous work, and this increase in house prices (see previous post on this). For me, this explains a large part of what they find, particularly the large increase from the late 1990s. Instead, they argue that land increasingly became a fixed factor due to a land-augmenting decline in transport costs from circa 1950 onwards. In addition, zoning regulations on land use may have further restricted the supply of land.


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