A Nation Of Gamblers: Real Estate Speculation And American History
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; under-priced 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.
This is the text of the 2013 Ely Lecture presented at the American Economics Association convention in San Diego. I am grateful to Yueran Ma, Charles Nathanson and especially Kristina Tobio for extraordinary research assistance. Joseph Gyourko and Jose Scheinkman provided helpful comments. The Taubman Center for State and Local Government provided helpful financial support. The Taubman Center for State and Local Government provided helpful financial support. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
- There are many similarities between the most recent boom and previous events: rising prices reflected optimistic expectations, and credit...
Glaeser, Edward L. 2013. "A Nation of Gamblers: Real Estate Speculation and American History." American Economic Review, 103(3): 1-42.