In a 1919 jubilee publication from the bank Stockholms inteckningsgaranti AB – at the time an important credit provider – we learn that speculation in land and real estate was widespread in Stockholm during the late nineteenth century. The anonymous writer exemplifies with Humlegården, a northeastern part of the city that used to be a backward area but was about to become one of the most exclusive parts of the city. There, he claims, land prices increased tenfold from 1878 up to 1885. But, “for such a land and building speculation to be brought in to a favorable end for the speculators concerned, it is a condition that rents, house values and building costs within society continue to rise”.1
Despite the anecdotal character of the assessment above, it accords well with numerous other observations, both by researchers and contemporary observers. They all report widespread housing speculation in the late 1800s century Stockholm.2
In the present dissertation, it is shown that real estate prices in Stockholm increased by almost 200 percent in real terms between 1855 and 1887, an increase later exceeded only by the one we are currently experiencing.
Between 1993 and 2020, small houses in Stockholm became, on average, 340 percent more expensive in real prices. Over the same period, the market value of apartment houses grew by 430 percent.3
At the moment, it may look like there is no end to the current price surge.
Housing may seem like a safe bet for someone who wants to invest. However, if we look into the past, such beliefs may very well prove misconceptions. The price peak in 1887 ended with a crash, throwing Stockholm’s economy into recession.4 After its recovery, twenty years of slower growth turned into stagnation after the crisis of 1908.5 A person who had invested in an apartment house in 1908 had to wait until 2005 to get his or her money back if we deflate
1 Stockholms Intecknings Garanti Aktiebolag, Stockholms intecknings garanti aktiebolag 1869-1919, 52 My translation. In the Swedish origianl, it says: ‘För att en sådan kombinerad tomt- och byggnadsspekulation skall kunna föras till ett för vederbörande spekulanters gynnsamt slut, är det naturligtvis ett nödvändigt villkor, att under byggnadstiden hyror, husvärden och byggnadskostnader inom samhället fortfara att stiga’.
2 See for instance Perlinge, Bubblan som sprack. Byggboomen i Stockholm 1896-1908; Forsell, Hus och hyra.
3 Edvinsson, Eriksson, Klas, and Ingman, ‘A Housing Price Index for Stockholm 1840-2017. Putting New Light on the “Hockey Stick”’.
4 Gustafson, Industrialismens storstad. Studier rörande Stockholms sociala, ekonomiska och demografiska struktur 1860-1910.
5 Perlinge, Bubblan som sprack. Byggboomen i Stockholm 1896-1908.
10
the prices with the consumer price index.6 Historically, what goes up dramatically often comes down, but it might take some time.
Real estate investments are situated in the nexus between opportunity and risk: the opportunity to take part of future price increases and streams of revenue, and the risk of finding oneself in an economically stressful situation as prices fall and the balance between assets and debt quickly tilts towards the latter. Both the positive and negative side of real estate investments can have societal impacts. In an environment where prices rise, the composition of owners determine who can take part of potential capital gains, which is important for the general change in wealth inequality. When prices fall, there is a danger that financial distress will have negative impact on the real economy.
All articles in this thesis deals with historical transactions of real estate.
These are used to reconstruct price indices, assess the existence of bubbles and discuss the composition among owners of real estate in Stockholm. In this regard, all articles concern the nexus between opportunity and risk, shedding light on it from different angles.
Following the global financial crisis 2007, the interest in financial turmoil in general, and real estate prices in particular, soared both in the academia and the public. Several international institutions have raised warnings over the Swedish real estate market and its booming prices. There is a real fear that the long and steep price growth during the latest decades is to be followed by a sharp decline, something that could have disastrous effects on the real economy.7
In the light of this, some researchers have turned to history for lessons on financial instability. A recurrent problem with many analyses is their relatively short time frame. As Carmen Reinhardt and Kenneth Rogoff put it:
“The economics profession has an unfortunate tendency to view recent experience in the narrow window provided by standard datasets. It is particularly distressing that so many cross-country analyses of financial crises rely on debt and default data going back only to 1980, when the underlying cycle can be a half-century or more long, not just 30 years”.8
Since then, some landmark cross-country studies on long-run real estate prices and historical bubbles have emerged. The 14-country house price dataset stretching from 1870 to 2012 by Knoll Schularick and Steger shows that the recent increase in prices is uniquely high in most countries included
6 Edvinsson, Eriksson, Klas, and Ingman, ‘A Housing Price Index for Stockholm 1840-2017. Putting New Light on the “Hockey Stick”’.
7 European Commission, Landsrapport Sverige 2017. Med en fördjupad granskning rörande förebyggande och korrigering av makroekonomiska obalanser; OECD,
‘Resilience in a Time of High Debt’; Af Jochnick, ‘Why Does the Riksbank Care about Household Indebtness?’
8 Reinhart and Rogoff, ‘From Financial Crash to Debt Crisis’, 1676.
11
in their study.9 Jordá, Schularick, and Taylor partly use the same dataset to construct a 17-country dataset for the same years. They show that credit-fueled real estate bubbles have been historically re-occurring, and very costly.10 However, a drawback of their analyses is the data quality. To construct long series, different sources of varying quality had to be combined. There are only a few high-quality real estate price series worldwide that stretch back to the 1800s. Therefore, there is a need for studies such as this that strengthens our knowledge about historical price developments.
The project of which this dissertation is a part aims to create a real estate price index for Stockholm back to the 1600s.11 To construct historical price series is time-consuming and often difficult. That is probably the main reason why we still lack data on the period before the twentieth century for most cities in the world. In the case of Stockholm, a house price index for the years 1875-1957 was published in 2014.12 A housing price index for 1300-1600 has already been constructed by Johan Söderberg and Bo Franzén.13 From 1957 to today, Statistics Sweden has an index. Linked together, they will form one of the longest real estate price series in the world; rivaled only by Paris for which data exists from the year 1200.14
One might ask what there is to learn from only one single case such as Stockholm. After all, Sweden is located far north, on the periphery of Europe.
Stockholm’s economic impact on the rest of the continent, not to mention the world, has been limited. Nevertheless, there are general lessons to be drawn from a study like this.
Throughout the articles in this thesis, it is argued that even if Stockholm was of minor importance in Europe, it did share a trajectory similar to other cities on the continent. Between 1730 and 2020, the period covered here, major transformations took place, such as 1) the breakup of the guild system and the movement towards a more commercialized capitalist city during the 1800s; 2) the gradual strengthening of women’s rights, that included private ownership rights that was directly related to the real estate market; and 3) the development of the financial sector during the late 1800s, the political restraint of it after the world war and, finally, the process of financialization toward the end of the twentieth century. If we focus solely on real estate prices, the recent
9 Knoll, Schularick, and Steger, ‘No Price Like Home’.
10 Jorda, Schularick, and Taylor, ‘Leveraged Bubbles’.
11 The project “Fastighetspriser I Stockholms innerstad från 1600-talet till idag” is financed by Torsten Söderbergs stiftelse.
12 Edvinsson, Blöndal, and Söderberg, ‘A Price Index for Residential Property in Stockholm, 1875–2012’.
13 Franzén and Söderberg, ‘Hus, gårdar och gatubodar. Fastighetspriser i Stockholm och Arboga 1300–1600’.
14 Friggit, ‘Le Prix Des Logements Sur Longue Période’.
12
price surges in Sweden can also be noted in several other economies around the world.15
Being the capital of a small, export-oriented economy, Stockholm has shared many important characteristics with other cities. Historical observations of events and developments in its real estate market are therefore of interest also for researchers focusing on other countries or regions. Given how little knowledge we have of long-run developments in general, a focused study on one city has much to offer in terms of insights and possible future questions to raise as more series are produced.
Research aim
This dissertation attempts to analyze changes and continuities in Stockholm’s real estate market over a period of 300 years. The five articles of this thesis raise three overarching issues:
1) The main focus of the project, of which this thesis is a part, is to construct a long-run price index for Stockholm. While the project aims at constructing an index from 1600 to 1875, this study mainly focuses on the subperiod 1730–1875. This thesis will bring new knowledge of historical trends and fluctuations. It will furthermore contribute to discussions on source criticism and methods for constructing long-run indices. Those discussions contribute to the knowledge about possible obstacles in constructing price indices, and how they can be overcome.
2) The second aim of this thesis is to investigate the occurrence of historical periods of booms and busts in Stockholm’s real estate market, where the new price index can provide insights. Today’s real estate prices and their risk of collapse are compared to earlier
periods.
3) The third aim of this thesis is to analyze inequalities in early modern Stockholm, and how they played out in the real estate market.
During the studied period, the city was stratified in terms of both gender and class. By looking into participation in real estate
transactions, it is possible to identify which groups were involved in such activities and how this involvement changed over time. The thesis brings new knowledge about the interplay between formal and informal institutions and clarifies who, in practice, could invest in
15 See for instance the discussion in Knoll, Schularick, and Steger, ‘No Price Like Home’.
13
real estate which was a major asset class and an important source of income.