Real Estate Prices Around the World, Part 2
Bryan Taylor, Economist, Global Financial Data
Japan
Japan has probably shown the wildest swings in real estate prices of any country that we cover as can be seen in Figure 11. After the devastation of World War II and the inflation that followed, real estate prices crashed during the 1940s. Real estate prices showed dramatic increases during the 1950s and 1960s. The price of real estate increased five-fold in the 1950s and more than tripled in the 1960s. Prices increased 30-fold between 1949 and 1973, though they had only doubled since the end of the war. Prices fell after the 1973 peak, losing one-third of their value during the next five years. Between 1978 and 1989 another dramatic surge in prices occurred as the price of real estate more than tripled once again. It was said that at the top of the bubble, the imperial palace in downtown Tokyo was worth more than the entire state of California. Obviously, this was just a bubble, and it burst in 1989. The stock market and real estate steadily declined. During the next 15 years, prices declined back to the levels they had been at in the 1970s and they have remained at those levels since 2005. Neither the price of real estate nor inflation has increased during the past 18 years. Both have flatlined. Given this, there is little prospect for rising real estate prices in Japan in the near future.
Figure 11. Japan Price of Real Estate after Inflation, 1945 to 2023
Netherlands
The price of real estate in the Netherlands has shown dramatic swings over time. As Figure 12 shows, after a steady increase in the price of real estate between 1970 and 1978, real estate prices declined during the 1980s. Beginning in 1990, real estate started to slowly recover for the next twenty years, peaking in 2008 at about three-times the price level in 1990. Inflation rose faster than real estate prices for the next five years before a third dramatic increase in prices occurred. By 2022, real estate prices had risen by 80 per cent since 2013 after inflation. Prices have declined since then. Generally, however, prices have increased since 1990 and continued increases in or a stabilization of real estate prices are likely in the future.
Figure 12. Netherlands Real Estate Prices after Inflation, 1970 to 2023
New Zealand
Like Australia, New Zealand has shown a steady appreciation in the price of real estate over time as can be seen in Figure 13. Price increases were minimal during the twentieth century, but after 2002, the steady increase in real estate prices in New Zealand began. Prices doubled between 2002 and 2007, remained steady for the next five years, then more than doubled again between 2011 and 2021. Prices have fallen back since then. Even with the most recent decline, real estate prices have increased almost five-fold during the past 40 years. There is no reason to suspect that real estate prices in New Zealand will not continue to increase.
Figure 13. New Zealand Real Estate Prices after Inflation, 1979 to 2023
Norway
After the United Kingdom, Norway provides the longest-term history for real estate prices among the countries that we cover. Norway has calculated real estate prices going back 200 years and the data are provided in Figure 14. There was little change in real estate prices in Norway until about 1850. During the second half of the 19th century, real estate prices steadily rose, increasing almost six-fold between 1847 and 1899. However, real estate prices remained dormant for the next 90 years. Prices declined until about 1920, rose during the Roaring Twenties, then declined again until the 1950s. Prices rose until 1987 with most of the increase coming between 1977 and 1987. Prices then declined for five years before beginning their current climb.
During the past 30 years, real estate prices have steadily risen faster than inflation. Real prices increased over four-fold between 1992 and 2022 and show no sign of declining. At some point, housing prices will have to take a breather, but there is no evidence of this yet. Just as in Sweden, real estate prices have increased during the past 30 years and show no sign of abating.
Figure 14. Norway Real Estate Prices after Inflation, 1819 to 2023
South Africa
Real estate prices showed a dramatic increase during the early 2000s but have stabilized since then. As can be seen in Figure 15, real estate prices rose by 50% between 1965 and 1974, fell back to 1980 levels, increased 50% again to 1984, then steadily declined until 1997. By 1997, real estate prices were below their levels in the 1960s after adjusting for inflation. During the next ten years, real estate prices tripled and peaked in 2007. Since then, inflation has risen faster than real estate prices, knocking about 20% off real estate prices since the peak. Given the political and economic problems that South Africa is currently facing, it seems unlikely that real estate prices will begin another rise in the near future.
Figure 15. South Africa Real Estate Prices after Inflation, 1965 to 2023
Spain
Real estate prices in Spain steadily increased between 1971 and 2007, consistently beating inflation. Prices doubled between 1971 and 1978, declined until 1981, then more than doubled between 1987 and 1991. Prices remained steady between 1991 and 1998, then money poured into the real estate market which more than doubled in price between 1998 and 2007. At its peak in 2007, real estate prices had increased almost ten-fold between 1971 and 2007, but by then real estate prices had reached unsustainable levels, and prices declined until 2014 before stabilizing. Since then, real estate prices have moved in line with inflation. There is no reason to believe that real estate prices will once again start moving up. Spain simply does not have the economic resources to drive another increase in real estate prices.
Figure 16. Spain Real Estate Prices after Inflation, 1971 to 2023
Sweden
Real estate prices in Sweden have steadily increased during the past 25 years. As can be seen in Figure 17, after adjusting for inflation, housing prices were in a downward trend from 1970 to 1996. Despite increases in prices in the late 1970s and late 1980s, declines in prices in real estate prices relative to inflation in the early 1980s and early 1990s more than offset these increases. Between 1996 and 2021, real estate prices quadrupled. Prices declined during 2022, but they remain substantially above their levels in the past. Real estate prices are overstretched here, so a stabilization in real estate prices would not be unexpected.
Figure 17. Sweden Real Estate Prices after Inflation, 1970 to 2023
Switzerland
Real estate prices in Switzerland have steadily increased during the twenty-first century. This was not true in the twentieth century. There were two real estate bubbles in Switzerland in the 1900s. The first occurred in the 1970s, with prices increasing by one-third in the early 1970s, then giving it all back in the decline that followed. There was a second, larger bubble during the 1980s. Real estate prices rose by around 70% in the 1980s, but all of this was given back during the 1990s. The increase in prices since 2000 has been steadier and over the past 20 years, prices have risen by around 80%. Despite the appearance of the graph in Figure 18, real estate prices have not moved as dramatically in Switzerland as they have in other countries. Given Switzerland’s past, it seems likely that real estate prices will fall back, but it is unlikely that prices will return to the levels they were at in 2000. Since Switzerland has such low inflation, having inflation beat real estate prices for the next decade seems unlikely to occur.
Figure 18. Switzerland Real Estate Prices after Inflation, 1970 to 2023
United Kingdom
There is more history on real estate prices in Great Britain than in any other country. Data are available from 1290 to the present. As Figure 19 shows, there was a decline in real estate prices during the Middle Ages, especially after the Bubonic Plague hit England in the 1340s. The number of people declined dramatically, but the amount of housing stayed the same leading to a decline in housing prices. Real estate prices rose in the 1500s along with the general inflation that hit Europe after the discovery of silver in the Americas. Prices remained stable again until the late 1700s when another increase in real estate prices occurred. A final increase in real estate prices occurred in the 1910s during World War I. All of these price increases since the 1500s, however, were in line with inflation in Great Britain during each of those time periods causing little real change in the level of real estate prices.
The real increase in real estate prices after inflation occurred beginning in 1940. Housing prices increased almost ten-fold between 1939 and 2007 with peaks in 1948, 1973, 1989 and 2007. Since the 2007 peak, real estate prices have declined about 20% from their high. Between 1995 and 2007, real estate prices rose by 150% after inflation, one of the largest increases in British history. It will probably take the rest of the decade for housing prices to catch up with the trend that began in 1939, but one should expect that housing prices will once again increase in the 2030s.
Figure 19. United Kingdom Real Estate Prices after Inflation, 1290 to 2023
United States
The Great Financial Crisis in 2007-2008 was driven by the collapse in the real estate market. This made everyone aware of the impact of real estate as an asset on the rest of the economy because until then housing prices had been relatively stable during the previous 50 years. More people invest in real estate than in stocks and bonds, so real estate’s behavior as an asset class is an important consideration.
Figure 20 shows the inflation-adjusted price of housing in the United States since 1890 using the Case-Shiller Housing Price Index. As the chart shows, housing prices were stable until World War I, declined between World War I and World War II, and remained stable between 1952 and 1996, with small peaks at the end of the 1970s and 1980s. The real estate market has gone through two bubbles since then up until 2007 and up until 2020. Each decline was the result of higher interest rates, an economic slowdown, or both. It appears that real estate prices have peaked after a second ten-year run. With mortgage rates rising, the ability to buy real estate has declined, so we could well see real estate prices declining or remaining stable for the rest of the decade.
Figure 20. USA Case-Shiller Housing Price Index after Inflation, 1890 to 2022
World
Global Financial Data has put together an index of world real estate prices, weighting each country by its GDP. The index includes all of the countries discussed in this Guide with data on the United Kingdom, Norway and United States since 1890, Japan since 1945 and most European countries since 1970. As Figure 21 shows, there was very little appreciation in housing prices after inflation between 1900 and 1960. There were small increases during the 1960s, but the first bubble occurred between 1970 and 1980. Prices declined during the early 1980s, but a second increase occurred in the late 1980s. Real estate prices were in a downward trend during the 1990s but rose a third time between 2000 and 2007. Since then, real estate prices have kept level with inflation.
There is no evidence that a fourth global real estate bubble is on the horizon, but a new bubble will occur at some point in the future. Bubbles last about a decade, so if one were to begin, it would probably last into the 2030s. When it will begin is anyone’s guess.
Figure 21. Developed World Real Estate Prices after Inflation, 1890 to 2023
Conclusion
This review of 50 years of real estate prices in 20 different countries shows how independent the national real estate markets are of one another. Virtually every real estate market shows different behavior from other countries. This is true within countries as well. The market for real estate in California is completely different from the market for Iowa. There is no reason to believe that real estate markets will become similar in the future. Every piece of real estate is unique, and trends in real estate prices appear to be even more unpredictable than equity markets.
