IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v103y2013i3p1-42.html
   My bibliography  Save this article

A Nation of Gamblers: Real Estate Speculation and American History

Author

Listed:
  • Edward L. Glaeser

Abstract

The great housing convulsion that buffeted America between 2000 and 2010 has historical precedents, from the frontier land boom of the 1790s to the skyscraper craze of the 1920s. But this time was different. There was far less real uncertainty about fundamental economic and geographic trends, making the convulsion even more puzzling. During historic and recent booms, sensible models could justify high prices on the basis of seemingly reasonable projections about stable or growing prices. The recurring error appears to be a failure to anticipate the impact that elastic supply will eventually have on prices, whether for cotton in Alabama in 1820 or land in Las Vegas in 2006. Buyers don't appear to be irrational but rather cognitively limited investors who work with simple heuristic models, instead of a comprehensive general equilibrium framework. Low interest rates rarely seem to drive price growth; underpriced default options are a more common contributor to high prices. The primary cost of booms has not typically been overbuilding, but rather the financial chaos that accompanies housing downturns.

Suggested Citation

  • Edward L. Glaeser, 2013. "A Nation of Gamblers: Real Estate Speculation and American History," American Economic Review, American Economic Association, vol. 103(3), pages 1-42, May.
  • Handle: RePEc:aea:aecrev:v:103:y:2013:i:3:p:1-42
    Note: DOI: 10.1257/aer.103.3.1
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.103.3.1
    Download Restriction: no

    File URL: http://www.aeaweb.org/aer/ds/may2013/P2013_7000_ds.zip
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    References listed on IDEAS

    as
    1. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
    2. Jackson, Jerry R., 1979. "Intraurban variation in the price of housing," Journal of Urban Economics, Elsevier, vol. 6(4), pages 464-479, October.
    3. Wagner, Alfred, 1891. "Marshall's Principles of Economics," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 5, pages 319-338.
    4. Glaeser, Edward L. & Gyourko, Joseph & Saiz, Albert, 2008. "Housing supply and housing bubbles," Journal of Urban Economics, Elsevier, vol. 64(2), pages 198-217, September.
    5. Jason Barr, 2010. "Skyscrapers and the Skyline: Manhattan, 1895–2004," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(3), pages 567-597, September.
    6. Farley Grubb, 2010. "US Land Policy: Founding Choices and Outcomes, 1781–1802," NBER Chapters, in: Founding Choices: American Economic Policy in the 1790s, pages 259-289, National Bureau of Economic Research, Inc.
    7. Karl E. Case & Robert J. Shiller & Anne K. Thompson, 2012. "What Have They Been Thinking? Homebuyer Behavior in Hot and Cold Markets," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 265-315.
    8. Sandra E. Black, 1999. "Do Better Schools Matter? Parental Valuation of Elementary Education," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 577-599.
    9. Ferreira, Fernando, 2010. "You can take it with you: Proposition 13 tax benefits, residential mobility, and willingness to pay for housing amenities," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 661-673, October.
    10. Rousseau, Peter L., 2002. "Jacksonian Monetary Policy, Specie Flows, And The Panic Of 1837," The Journal of Economic History, Cambridge University Press, vol. 62(2), pages 457-488, June.
    11. Graves, Philip E., 1980. "Migration and climate," MPRA Paper 19916, University Library of Munich, Germany.
    12. Schmitz, Andrew & Bawden, D. Lee, 1973. "The World Wheat Economy: An Empirical Analysis," Monographs, University of California, Davis, Giannini Foundation, number 251914, December.
    13. Alston Lee J. & Grove Wayne A. & Wheelock David C., 1994. "Why Do Banks Fail? Evidence from the 1920s," Explorations in Economic History, Elsevier, vol. 31(4), pages 409-431, October.
    14. Edward L. Glaeser & Joshua D. Gottlieb & Joseph Gyourko, 2012. "Can Cheap Credit Explain the Housing Boom?," NBER Chapters, in: Housing and the Financial Crisis, pages 301-359, National Bureau of Economic Research, Inc.
    15. Polinsky, A Mitchell & Ellwood, David T, 1979. "An Empirical Reconciliation of Micro and Grouped Estimates of the Demand for Housing," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 199-205, May.
    16. Olmstead, Alan L. & Rhode, Paul W., 2002. "The Red Queen and the Hard Reds: Productivity Growth in American Wheat, 1800–1940," The Journal of Economic History, Cambridge University Press, vol. 62(4), pages 929-966, December.
    17. Robert J Shiller, 2008. "Historic Turning Points in Real Estate," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 34(1), pages 1-13, Winter.
    18. Ernest M. Fisher, 1951. "Urban Real Estate Markets: Characteristics and Financing," NBER Books, National Bureau of Economic Research, Inc, number fish51-1.
    19. Hoyt Bleakley, 2007. "Disease and Development: Evidence from Hookworm Eradication in the American South," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 73-117.
    20. A. E. Holmans, 1964. "The Derived Demand Curve Fora Productive Factor And The Industry Supply Curve," Oxford Economic Papers, Oxford University Press, vol. 16(2), pages 235-261.
    21. Field, Alexander James, 1992. "Uncontrolled Land Development and the Duration of the Depression in the United States," The Journal of Economic History, Cambridge University Press, vol. 52(4), pages 785-805, December.
    22. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-1278, December.
    23. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1253-1296.
    24. Glaeser, Edward L., 2006. "Paternalism and Psychology," Working Paper Series rwp06-006, Harvard University, John F. Kennedy School of Government.
    25. James Poterba, 2004. "Taxation and Corporate Payout Policy," American Economic Review, American Economic Association, vol. 94(2), pages 171-175, May.
    26. Albert Saiz, 2003. "Room in the Kitchen for the Melting Pot: Immigration and Rental Prices," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 502-521, August.
    27. Harley, C. Knick, 1978. "Western Settlement and the Price of Wheat, 1872–1913," The Journal of Economic History, Cambridge University Press, vol. 38(4), pages 865-878, December.
    28. Howard H. Preston, 1922. "Branch Banking with Special Reference to California Conditions," Journal of Political Economy, University of Chicago Press, vol. 30, pages 494-494.
    29. Nathaniel Baum-Snow, 2007. "Did Highways Cause Suburbanization?," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 775-805.
    30. James M. Poterba, 1984. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 729-752.
    31. Harding, John P. & Rosenthal, Stuart S. & Sirmans, C.F., 2007. "Depreciation of housing capital, maintenance, and house price inflation: Estimates from a repeat sales model," Journal of Urban Economics, Elsevier, vol. 61(2), pages 193-217, March.
    32. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1449-1496.
    33. Officer, Lawrence H., 1983. "Dollar-Sterling Mint Parity and Exchange Rates, 1791–1834," The Journal of Economic History, Cambridge University Press, vol. 43(3), pages 579-616, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Edward L. Glaeser, 2013. "A Nation Of Gamblers: Real Estate Speculation And American History," NBER Working Papers 18825, National Bureau of Economic Research, Inc.
    2. Edward L. Glaeser & Charles G. Nathanson, 2014. "Housing Bubbles," NBER Working Papers 20426, National Bureau of Economic Research, Inc.
    3. Glaeser, Edward L. & Nathanson, Charles G., 2015. "Housing Bubbles," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 701-751, Elsevier.
    4. Zhenyu Gao & Michael Sockin & Wei Xiong, 2020. "Learning about the Neighborhood," NBER Working Papers 26907, National Bureau of Economic Research, Inc.
    5. Edward Glaeser & Wei Huang & Yueran Ma & Andrei Shleifer, 2017. "A Real Estate Boom with Chinese Characteristics," Journal of Economic Perspectives, American Economic Association, vol. 31(1), pages 93-116, Winter.
    6. Edward L. Glaeser & Joshua D. Gottlieb & Joseph Gyourko, 2012. "Can Cheap Credit Explain the Housing Boom?," NBER Chapters, in: Housing and the Financial Crisis, pages 301-359, National Bureau of Economic Research, Inc.
    7. Michael Brocker & Christopher Hanes, 2014. "The 1920s American Real Estate Boom and the Downturn of the Great Depression: Evidence from City Cross-Sections," NBER Chapters, in: Housing and Mortgage Markets in Historical Perspective, pages 161-201, National Bureau of Economic Research, Inc.
    8. Baum-Snow, Nathaniel & Ferreira, Fernando, 2015. "Causal Inference in Urban and Regional Economics," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 3-68, Elsevier.
    9. Greg Howard & Carl Liebersohn, 2019. "What Explains U.S. House Prices? Regional Income Divergence," 2019 Meeting Papers 1054, Society for Economic Dynamics.
    10. Edward L. Glaeser & Joshua D. Gottlieb & Kristina Tobio, 2012. "Housing Booms and City Centers," American Economic Review, American Economic Association, vol. 102(3), pages 127-133, May.
    11. Chan, Sewin & Haughwout, Andrew & Tracy, Joseph, 2015. "How Mortgage Finance Affects the Urban Landscape," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 987-1045, Elsevier.
    12. Luis Armona & Andreas Fuster & Basit Zafar, 2019. "Home Price Expectations and Behaviour: Evidence from a Randomized Information Experiment," Review of Economic Studies, Oxford University Press, vol. 86(4), pages 1371-1410.
    13. Piazzesi, M. & Schneider, M., 2016. "Housing and Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1547-1640, Elsevier.
    14. Greg Kaplan & Kurt Mitman & Giovanni L. Violante, 2020. "The Housing Boom and Bust: Model Meets Evidence," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3285-3345.
    15. Anundsen, André Kallåk & Heebøll, Christian, 2016. "Supply restrictions, subprime lending and regional US house prices," Journal of Housing Economics, Elsevier, vol. 31(C), pages 54-72.
    16. Dieci, Roberto & Westerhoff, Frank, 2016. "Heterogeneous expectations, boom-bust housing cycles, and supply conditions: A nonlinear economic dynamics approach," Journal of Economic Dynamics and Control, Elsevier, vol. 71(C), pages 21-44.
    17. Knut Are Aastveit & André K. Anundsen, 2017. "Asymmetric effects of monetary policy in regional housing markets," Working Paper 2017/25, Norges Bank.
    18. Pascal Towbin & Mr. Sebastian Weber, 2015. "Price Expectations and the U.S. Housing Boom," IMF Working Papers 2015/182, International Monetary Fund.
    19. Dieci, Roberto & Westerhoff, Frank, 2015. "Heterogeneous expectations, boom-bust housing cycles, and supply conditions: A nonlinear dynamics approach," BERG Working Paper Series 99, Bamberg University, Bamberg Economic Research Group.
    20. Christopher L Foote & Lara Loewenstein & Paul S Willen, 2021. "Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Evidence and Implications," Review of Economic Studies, Oxford University Press, vol. 88(1), pages 229-259.

    More about this item

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:103:y:2013:i:3:p:1-42. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.