This was given by Edward Glaeser, he of the recent book on how great cities are for productivity and economic growth. His topic was “A Nation of Gamblers: Real Estate Bubbles and America’s Urban History.” He began by quoting Richard T. Ely identifying real estate as the best area for investment. He went on to describe 9 episodes of urban real-estate bubbles in the U.S. – including upstate New York, Alabama, Iowa, Chicago, New York City, and California. Each bubble was driven by land prices, combined with expectations of future population growth. In some cases, building skyscrapers ended the bubble; in others, expected population surges failed to materialize. (Expectations of residents of Los Angeles in 1988 were that housing prices would rise by 14.2% per year every year.) In yet other cases, rising interest rates bankrupted speculators.
His bottom line was that real-estate bubbles have been a constant feature of American life. Contradicting Reinhart and Rogoff, however, he thought that this time was different – it was national and not confined to a single geographic area. This was partly the result of very low interest rates after 2002, combined with sharp declines (or the complete disappearance) of down payments for urban property. Anyway, his history of bubbles will be interesting reading when the paper appears in the AER in the May 2013 issue.
Click her for the full paper - well worth a read.
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