Land speculation

Date posted: July 11, 2013

The big rise in land and housing prices during the period 1997 to 2006 was unprecedented in our history.  Of course, many have argued this big jump directly led to the subsequent crash and the great recession. But let’s take a longer view. Have land and housing prices always been subject to big ups and downs in our economic history? N.C. State University economist Mike Walden responds.

“Well, they really have, although most of the previous changes have been in terms of land. We’ve gone through several land booms and land busts in our economic history, usually associated historically with changes in farmland. That is, when there have been good times for farmers and food prices are up, farmland values skyrocket, and then when there’s a pullback, you see a plunge in farmland values.

And so we have seen a number of land booms and busts in our history related to farmland. Now the housing boom, of course, was very different. We did have a fantastic boom in the housing market, and then a subsequent decline.

I think the common thread here for both farmland and the housing boom and bust that we went through is the fact that land is of limited supply. When you have a commodity that can be easily changed in the amount of production, you don’t tend to have these big swings. But when you have a commodity that’s limited in supply — it’s very difficult, for example, to destroy land or add land — then you’re going to have these big price swings.

So this is not unusual. Hopefully, we do learn from experience and we can moderate those future ups and downs in land and housing prices.”

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