federal reserve bank of dallas globalization and monetary ... ?· federal reserve bank of dallas ....

Download Federal Reserve Bank of Dallas Globalization and Monetary ... ?· Federal Reserve Bank of Dallas . Globalization…

Post on 01-Jul-2018

212 views

Category:

Documents

0 download

Embed Size (px)

TRANSCRIPT

  • Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute

    Working Paper No. 208 http://www.dallasfed.org/assets/documents/institute/wpapers/2014/0208.pdf

    No Price Like Home: Global House Prices, 18702012*

    Katharina Knoll

    Free University of Berlin

    Moritz Schularick University of Bonn, CEPR, and CESifo

    Thomas Steger

    Leipzig University, CESifo, and IWH

    October 2014

    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. JEL codes: N10, O10, R30, R40

    * Katharina Knoll, Free University of Berlin, Lansstrasse 5, 14195 Berlin, Germany. katharina.knoll@fu-berlin.de. Moritz Schularick, Department of Economics, University of Bonn, Adenaueralle 24-42, D-53113 Bonn, Germany. 49-0-228-73-7976. moritz.schularick@uni-bonn.de. Thomas Steger, Leipzig University, Institute for Theoretical Economics, Grimmaische Strae 12, D-04109 Leipzig , Germany. 49-0-341-97-33541. steger@wifa.uni-leipzig.de. We wish to thank Klaus Adam, Christian Bayer, Jacques Friggit, Volker Grossman, Riitta Hjerppe, Mathias Hoffmann, Carl-Ludwig Holtfrerich, scar Jord, Marvin McInnis, Philip Jung, Christopher Meissner, Alexander Ntzenadel, Thomas Piketty, Jonathan D. Rose, Petr Sedladcek, Sjak Smulders, Kenneth Snowden, Alan M. Taylor, Daniel Waldenstrm, and Nikolaus Wolf for helpful discussions and comments. Schularick received financial support from the Volkswagen Foundation. Part of this research was undertaken while Knoll was at New York University. Niklas Flamang, Miriam Kautz and Hans Torben Lfflad provided excellent research assistance. All remaining errors are our own. The views in this paper are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Dallas or the Federal Reserve System.

    http://www.dallasfed.org/assets/documents/institute/wpapers/2014/0208.pdfmailto:katharina.knoll@fu-berlin.demailto:katharina.knoll@fu-berlin.demailto:moritz.schularick@uni-bonn.demailto:steger@wifa.uni-leipzig.de

  • Contents

    Contents 2

    1 Introduction 5

    2 The data 7

    2.1 House price indices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

    2.2 Historical house price data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

    3 House prices in 14 advanced economies, 18702012 11

    3.1 Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

    3.2 Belgium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

    3.3 Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

    3.4 Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

    3.5 Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

    3.6 France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

    3.7 Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

    3.8 Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

    3.9 The Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

    3.10 Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

    3.11 Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

    3.12 Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

    3.13 United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

    3.14 United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

    4 Aggregate trends 20

    4.1 Prices rise on average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

    4.2 Strong increase in the second half of the 20th century . . . . . . . . . . . . . . . 21

    4.3 Urban and rural prices move together . . . . . . . . . . . . . . . . . . . . . . . . 23

    4.4 Further checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

    4.4.1 Quality improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

    4.4.2 Composition shifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

    4.4.3 Country sample and weights . . . . . . . . . . . . . . . . . . . . . . . . . 28

    2

  • 5 Decomposing house prices 29

    5.1 Construction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

    5.2 Residential land prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

    5.3 Decomposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

    6 Explaining the long-run evolution of land prices 35

    6.1 The neoclassical model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

    6.2 Transport revolution and land supply . . . . . . . . . . . . . . . . . . . . . . . . 37

    6.3 Land prices in the second half of the 20th century . . . . . . . . . . . . . . . . . 41

    7 Conclusion 43

    Appendix 45

    A Supplementary material 45

    A.1 Land heterogeneity and transportation costs . . . . . . . . . . . . . . . . . . . . 45

    A.2 A brief review of the theoretical literature . . . . . . . . . . . . . . . . . . . . . 46

    A.3 Housing expenditure share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

    A.4 Figures and tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

    B Data appendix 50

    B.1 Description of the methodological approach . . . . . . . . . . . . . . . . . . . . 50

    B.2 Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

    B.3 Belgium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

    B.4 Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

    B.5 Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

    B.6 Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

    B.7 France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

    B.8 Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

    B.9 Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

    B.10 The Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

    B.11 Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

    B.12 Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

    B.13 Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

    B.14 United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

    3

  • B.15 United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

    B.16 Summary of house price series . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

    References 132

    4

  • 1 Introduction

    For Dorothy there was no place like home. But despite her ardent desire to get back to Kansas,Dorothy probably had no idea how much her beloved home cost. She was not aware that theprice of a standard Kansas house in the late 19th century was around 2,400 dollars (Wickens,1937). She could also not have known whether relocating the house to Munchkin Countrywould have increased its value or not. For economists there is no price like home at leastnot since the global financial crisis: fluctuations in house prices, their impact on the balancesheets of consumers and banks, as well as the deleveraging pressures triggered by house pricebusts have been a major focus of macroeconomic research in recent years (Mian and Sufi, 2014;Shiller, 2009; Case and Quigley, 2008). In the context of business cycles, the nexus betweenmonetary policy and the housing market has become a rapidly expanding research field (Adamand Woodford, 2013; Goodhart and Hofmann, 2008; Del Negro and Otrok, 2007; Leamer,2007). Houses are typically the largest component of household wealth, the key collateral forbank lending and play a central role for long-run trends in wealth-to-income ratios and thesize of the financial sector (Piketty and Zucman, 2014; Jord et al., 2014). Yet despite theirimportance for the macroeconomy, surprisingly little is known about long-run trends in houseprices. This paper aims to fill this void.

    Based on extensive historical research, we present house price indices for 14 advancedeconomies since 1870. A large part of this paper is devoted to the presentation and discussion ofthe data that we unearthed from more than 60

Recommended

View more >