YESTERDAY’S Amsterdam post on casaCARA got me thinking about an article, “This Very, Very Old House,” that ran in The New York Times magazine in March 2006, analyzing boom/bust cycles in Amsterdam real estate over four centuries.
When the piece was published, it was an open question as to whether our own real-estate bubble would burst. Now that it has, going back for a re-read is helpful, especially for the calming effect such a long view has on our current preoccupations: Will prices go up again? Will they go down further? How much further down will they go?
The article’s author, Russell Shorto (who wrote The Island at the Center of the World, about New York’s Dutch origins), focused on a single house, built in 1625 by a carpenter named Pieter Fransz — “an elegant red brick step-gable with sandstone bands….and cross-framed windows” on Amsterdam’s still-prime Herengracht (‘Gentleman’s Canal’) — and on the work of Piet Eichholtz, a real-estate finance professor at the Netherlands’ Maastricht University.
The townhouses that line Amsterdam’s canals are every bit as desirable today as when they were built in the 1600s. Nearly 400 years of sales records provide a unique perspective on the ups and downs of an urban property market — a much, much longer view than most real-estate market research, which goes back maybe 20 years.
Shorto analyzed the dramatic vicissitudes of the Herengracht’s real estate history. In real terms, adjusted for inflation, here’s how it went:
- Home prices doubled in five years (1628-1633) as the city boomed on trade with the Far East, and the establishment of the world’s first stock exchange
- 1635-1637. The bottom dropped out of the real-estate market in the wake of ‘Tulip Mania’ (out-of-control speculation on, of all things, tulip bulbs, which were then a great novelty) and the Plague, which killed 14% of the city’s population. Home prices fell 36%.
- Following those twin calamities, the housing market “quickly stabilized; by the early 1640’s, prices had surpassed their previous heights.“
- 1650s and 1660s was Holland’s Golden Age. Prices rose sharply. “Houses that once sold in the 4,000-guilder range…were now fetching 9,000 to 15,000.”
- 1672: France and England declare war on Holland. By 1677, houses on the Herengracht had lost 56% of their value.
The article picks up the specifics of Pieter Fransz’s house in the 19th century.
- In 1855, an estate agent paid 6,850 guilders for it.
- In 1881, his children sold it to a carpenter for 12,100, an increase of 93% in real terms.
- In 1888, the carpenter sold it at a loss for 10,000.
- In 1899, it sold again, for only 9,600.
- On the brink of WWI, a real-estate agent bought it for 10,000, a loss in real terms.
- In 1955, a woman named Grietje Uitentuis bought it for 15,000 guilders (adjusted for inflation, less than what the house brought in 1855).
So the house lost 30% of its value from the mid-19th to mid-20th century. Then:
- In 1983, a pair of doctors bought the house for 440,000 guilders.
- Today, houses on the Herengracht sell for between one million and three million euros (the Dutch converted to euros in 2002).
In other words: The house took 350 years to double its real value, then more than tripled in value in the 22 years between 1983 and 2005. So in the longest of long runs, writes Shorto, real estate as an investment “sort of stinks.” Because if you break it down, between 1628 and 1973 (the period of Eichholtz’s original study), real property values on the Herengracht, adjusted for inflation, went up a mere 0.2 per cent per year.
Few of us worry about how much our property will be worth centuries from now. The next five or ten years is about all we can see. And this research sheds no light on the short term.
But what seems safe to conclude from Amsterdam’s history is that there will inevitably be ups, and then there will be downs. Followed by ups. So try to relax.