The Price of Housing in the United States, 1890–2006

Lyons, Shertzer, Gray, and Agorastos construct the first consistent, annual, quality-adjusted market rent and home sales price series for American cities spanning 1890–2006. The paper addresses a fundamental data gap: no annual city-level series existed for market rents at any point in the 20th century, and no annual city-level sales price series existed prior to 1975. Existing national series—the BLS Rent of Primary Residence (RoPR) for rents and the Shiller index for sales—carry well-documented methodological limitations that the authors argue have produced materially misleading stylized facts about long-run U.S. housing markets.

The Historical Housing Prices (HHP) dataset draws on just under 2.7 million newspaper real estate listings from 30 U.S. cities across 1890–2006. Listings must contain a price, a size measure (rooms or bedrooms), property type (house or apartment), and a location indicator. The authors construct hedonic price indices using a rolling-windows methodology—baseline three-year rolling windows with annual step size—that controls for size, type, and standardized within-city location, allowing coefficients to vary over time rather than imposing a fixed vector across the full century. City-level indices are aggregated to national indices using population weights from census data interpolated between census years. Listed prices serve as proxies for transaction prices; the authors validate these against census distributions and against post-1975 FHFA and Case-Shiller series.

The paper’s findings revise several established stylized facts. First, real market rents did not fall over the 20th century as implied by the RoPR series. Instead, real rental price levels were approximately 20% higher in 2006 than in 1890, fluctuating within a relatively narrow band. The RoPR series, by contrast, implies a near-halving of real rents between 1914 and 2006. Second, the paper documents a substantial interwar housing boom-bust absent from the Shiller index: real sales prices rose approximately 47% between 1920 and 1928, then fell 27% by 1935, with the 1928 peak not recovered in real terms until 1968. Third, contrary to the Shiller index’s depiction of minimal housing price growth from 1950 to 1995, the HHP series shows real sales prices rising 21% between 1953 and 1974—a period for which Shiller relies on a truncated sample of government-backed mortgages that excluded higher-valued homes.

On the return to homeownership, the paper finds average nominal housing returns across 1890–2006 of approximately 11% per year, composed of 3.8% capital gain and 7.2% rental return. Gross market rental yields exceeded 8% annually for much of 1900–1945, fell to 7% by 1960, and to 3% by 2006. Capital gains were largely unimportant before the 1940s and became the dominant return component only from 1970 onward; the post-1980 period with sustained capital gains is characterized as historically anomalous. Returns varied substantially across cities, with some cities outperforming the S&P 500 in the prewar era while most underperformed equities from 1981–2006.

The paper also examines implications for the CPI. The HHP series implies nominal rents grew at approximately 3.5% per year from 1914 to 2006, versus 2.6% per year for the RoPR component. A back-of-the-envelope alternative CPI using HHP rental data yields overall price growth of 3.3% per year rather than the official 3.1%, suggesting the measured increase in U.S. living standards since World War I may be modestly overstated. Finally, cross-city analysis shows that land constraints and, increasingly, regulatory constraints explain divergence in price growth across cities, with the role of zoning becoming more pronounced after 1980.

Q: What is the core data source and how are the indices constructed? A: The HHP dataset comprises just under 2.7 million newspaper real estate listings from 30 U.S. cities, 1890–2006, sampled from real estate sections (typically the last Sunday of each month). Valid listings require price, size, property type, and within-city location. Hedonic indices are estimated using rolling three-year windows with annual steps, controlling for size, type, and standardized location, allowing hedonic coefficients to evolve over time rather than imposing a fixed vector. City indices are aggregated to national indices using population-weighted census data interpolated between census years.

Q: Why are the HHP series based on listing prices rather than transaction prices, and how is this limitation addressed? A: Transaction-price records require local archival effort infeasible across 30 cities over 116 years, and rental transaction data are essentially unavailable historically. The authors argue that hedonic mix-adjustment makes listed prices strong predictors of selling prices during normal market conditions, and that a substantial share of houses transact at their exact listing price. Validation against census distributions and against post-1975 FHFA and Case-Shiller series supports the approach; the authors acknowledge listing prices may diverge from transaction prices at cyclical peaks and troughs.

Q: What does the paper find about the long-run trajectory of real market rents, and how does this revise existing understanding? A: The HHP series shows real rental price levels in 2006 were approximately 20% higher than in 1890 or 1914, fluctuating within a relatively narrow band over the century. The BLS RoPR series implies real rents fell by nearly half between 1914 and 2006. The HHP findings align with the most influential proposed corrections to the RoPR by Gordon & van Goethem (2007) for 1915–1939 and broadly with Crone et al. (2010) in terms of overall growth levels for 1940–1995, though the HHP series shows a sharper rental spike after World War II rent controls were lifted that the BLS methodology captures only with deliberate lag.

Q: What does the paper find about the interwar housing cycle, and why does the Shiller index miss it? A: The HHP series documents that real sales prices rose approximately 47% between 1920 and 1928, then fell 27% by 1935, with the 1928 nominal peak not regained until 1946 and the real peak not until 1968. The Shiller index for 1890–1934 is based on a 1934 survey of owner recollections of past transaction prices and assessed values, which the authors argue reflects homeowners’ lack of awareness of the changing value of their homes over prior decades. The HHP finding is consistent with census data, Nicholas & Scherbina’s study of New York City, and Fishback & Kollmann’s analysis of New Deal reports.

Q: What does the paper find about the 1953–1974 period, and what explains the divergence from the Shiller index? A: The HHP series shows housing sales prices increased 21% in real terms between 1953 and 1974, while the Shiller index (based on the Home Purchase Component of the CPI) implies a moderate decline of around 10%. The Shiller index for this period uses a truncated sample of government-backed mortgages subject to FHA loan limits; when the authors truncate their own data using the same statutory FHA limits ($30,000 in 1973, $45,000 in 1974, $60,000 in 1977), approximately 50% of their 1971–1979 listings are excluded and their truncated series matches the Shiller index more closely. This supports the Greenlees (1982) critique of downward bias in the Home Purchase CPI component.

Q: What are the long-run return components to homeownership at the national level? A: Average nominal housing returns across 1890–2006 were approximately 11% per year: 3.8% capital gain and 7.2% rental return. Before World War II (1890–1945), average nominal rental returns ranged from 7.9% to 8.3% per sub-period while capital gains averaged near zero or negative in real terms. Only in 1981–2006 did capital gains (averaging 5.8%) exceed the rental return (averaging 5.3%). The return to housing has thus been dominated by rental income over the long run, with the post-1980 era of sustained capital gains constituting a historical anomaly.

Q: How do rental yields evolve over the sample period? A: Gross market rental yields exceeded 8% annually for much of 1900–1945, with spikes after both World Wars and a dramatic fall from nearly 11% to below 7% during the early 1920s boom, consistent with a bubble dynamic before the Great Depression. Yields fell to approximately 7% by 1960 and to 3% by 2006. City-level heterogeneity was substantial: rental returns exceeded 15% in some cities in the two decades before the Great Depression, and most cities saw returns above 10% nominally during 1930–1945, while even by 1981–2006 cities like Phoenix and St. Louis averaged above 12%.

Q: What does the paper find about housing and the business cycle? A: Real growth rates in GDP and housing prices moved in the same direction in 72 of 116 years for sales prices and 65 of 116 years for rental prices. The paper identifies three major downturns where falling rents led falling prices which led falling GDP: the Great Depression (rents fell from 1924, prices from 1929, GDP from 1930), the early 1990s recession (rents from 1988, prices from 1990, GDP from 1991), and the end-of-sample period (rents from 2002). Only after World War I (1920–21) and World War II (1945–46) did clear economic contractions occur without equivalent housing price downturns.

Q: What does the paper find about cross-city variation in housing returns, and what does this imply for the volatility puzzle? A: Capital gains and rental returns vary substantially across cities and time periods; some cities saw returns exceeding the S&P 500 before World War II (including New York and Chicago), while most underperformed equities from 1981–2006. The authors argue that the apparently low volatility of housing returns at the national level documented by Jordà et al. (2019) is partly an aggregation artifact: local housing markets with very different trajectories are combined into a national index, dampening measured variance. The mild positive correlation between city-level capital gains and rental returns has an R² of 0.24.

Q: What are the implications for CPI measurement? A: The HHP series implies nominal rents grew at approximately 3.5% per year from 1914 to 2006, compared with 2.6% per year for the BLS RoPR component, with higher growth concentrated in the years after both World Wars and in the 1965–1985 period. A back-of-the-envelope alternative CPI substituting HHP rental data yields overall price growth of 3.3% per year rather than the official 3.1%. If rental price growth before 1985 is understated in the BLS data, then there has been less improvement in the U.S. standard of living since World War I than was previously understood.

Q: What does the paper find about the role of supply constraints in explaining cross-city price divergence? A: Natural land constraints are positively linked to price growth throughout the 20th century, with the relationship sharpest during 1930–1945 (before the postwar suburban expansion) and again after 1980. Regulatory constraints—measured at the turn of the millennium—have become an increasingly important driver of cross-city price differences, consistent with zoning functioning as a tax (Gyourko & Krimmel 2021). The paper also finds evidence suggesting land-use regulations are partly driven by expectations of future price growth, consistent with the homeowner-voter hypothesis (Fischel 2015; Trounstine 2018).

Q: How does the paper validate its series against existing sources? A: The HHP rental series aligns closely with the Rees and Jacobs (1961) series for 1890–1914. For sales, the HHP series matches the Case-Shiller-Weiss and FHFA repeat-sales indices at both national and city level after 1990 despite methodological differences. The paper finds approximately 25% more price growth than the CSW series over 1975–2006 (117% versus 90% in the 30 HHP cities), attributing some of the divergence to OFHEO appraisal-based valuations before 1992 and the HHP coverage of the broader owned housing market beyond single-family homes.

1. Historical Housing Prices (HHP) Project: A dataset of just under 2.7 million newspaper real estate listings from 30 U.S. cities, 1890–2006, used to construct annual, quality-adjusted hedonic price indices for both rented and owned housing segments at the city and national level.

2. Rolling-windows hedonic methodology: An index construction approach that runs sequential hedonic regressions over two-, three-, or five-year overlapping windows with annual step size, allowing the coefficients on size, type, and location to evolve over time rather than imposing a fixed vector across the full sample period, reducing bias from unobserved quality changes.

3. Market rent vs. contract rent: Market rent (the listing price for a rental unit actively advertised) is conceptually distinct from contract rent (the rent paid by tenants currently in situ), which is what the BLS RoPR series measures. Market rents adjust to vacancy and lease resets faster than contract rents, producing substantially more short-run volatility and a materially different long-run trend.

4. Gross rental yield (rent-to-price ratio): Annual rental income from a property divided by its market sales price, computed as RI_{c,t} / HPI_{c,t}. Gross yields exceeded 8% annually for much of 1900–1945 and fell to 3% by 2006 nationally, making rental income the dominant component of total housing returns for most of the century.

5. Total return to housing: The sum of the capital gain (percentage change in sales price) and the rental return (rental income divided by sales price), computed at annual, city, and national frequency for 1890–2006. The average nominal total return was approximately 11% per year, with 3.8% from capital gains and 7.2% from rental income.

6. Rent of Primary Residence (RoPR): The BLS survey-based series measuring changes in contract rents for a rotating panel of rental units, used as the shelter component of the CPI. The HHP series implies this series understates rental price growth by approximately 0.9 percentage points per year (3.5% vs. 2.6% nominal growth), concentrated in post-World War periods and 1965–1985, due to tenant non-response bias and delayed incorporation of new construction.

7. Supply constraints and cross-city divergence: Natural land constraints (geographic barriers to development) and regulatory constraints (zoning and land-use regulation) that limit housing supply, both positively associated with price growth, with regulatory constraints becoming increasingly important after 1980 and consistent with the hypothesis that land-use regulations are partly driven by homeowner expectations of future price appreciation.