Essays on Stockholm’s real estate market 1730–2020
Gustav Ingman
Gustav Ingman Essays on Stockholm’s real estate market 1730–2020
Stockholm Studies in Economic History 71
Doctoral Thesis in Economic History at Stockholm University, Sweden 2022
Department of Economic History and International Relations
ISBN 978-91-7911-888-4 ISSN 0346-8305 Gustav Ingman
specializes in the economic history of real estate markets. Essays on Stockholm´s real estate market 1730–
2020 is his doctoral dissertation.
This thesis puts Stockholm´s present real estate price boom in a historical perspective. It discusses earlier periods of booms and busts, and maps resemblances and differences between time periods.
Furthermore, it provides new empirical data that can be useful for future researchers.
Essays on Stockholm’s real estate market 1730–
2020
Gustav Ingman
Academic dissertation for the Degree of Doctor of Philosophy in Economic History at
Stockholm University to be publicly defended on Friday 3 June 2022 at 13.00 in hörsal 3, hus B, Universitetsvägen 10 B.
Abstract
This dissertation examines the long-run development of Stockholm’s real estate market between the years 1730 and 2020.
Building on the city’s vast archival sources of housing transactions, it presents new insights into the historical price movements and the class and gender composition of the people that were engaged in the housing market.
In five articles, three overarching themes are addressed. Firstly, Stockholm’s real estate price development between 1730 and 1875 is reconstructed. The new indices are then linked to existing ones so that prices can be followed into the present. Perhaps the most striking finding is that the last decades of rapidly rising prices had a precursor in the late 1800s market. Secondly, the new indices are used to assess the historical existence of turbulence and bubbles. While several severe price declines are detected, not least in periods of price increases and world wars, the buildup to the financial crisis of 1990 stands out as unique with its explosive price surge. Thirdly, archival material with information about historical real estate transactions is used to examine the class and gender composition of real estate market participants from 1730 to 1875. While the class composition remained stable, women’s participation was transformed as more unmarried women started to invest in housing towards the end of the investigated period. It highlights a tension between formal regulations and the praxis of women living in an increasingly commercialized city.
This thesis puts Stockholm’s present real estate price boom in a historical perspective. It discusses earlier periods of booms and busts, and maps resemblances and differences with the present situation. Furthermore, it provides new empirical data that can be useful for future researchers.
Keywords: real estate, housing, bubbles, turbulence, financial crisis, wealth, real estate wealth.
Stockholm 2022
http://urn.kb.se/resolve?urn=urn:nbn:se:su:diva-204108
ISBN 978-91-7911-888-4 ISBN 978-91-7911-889-1 ISSN 0346-8305
Department of Economic History and International Relations
Stockholm University, 106 91 Stockholm
ESSAYS ON STOCKHOLM’S REAL ESTATE MARKET 1730–2020
Gustav Ingman
Essays on Stockholm’s real estate market 1730–2020
Gustav Ingman
©Gustav Ingman, Stockholm University 2022 ISBN print 978-91-7911-888-4
ISBN PDF 978-91-7911-889-1 ISSN 0346-8305
Cover: Fritz Ahlgrensson (1873), Stockholms stadsmuseum.
Printed in Sweden by Universitetsservice US-AB, Stockholm 2022
Till Tove
Författarens tack
Jag är lyckligt lottad som de senaste fem åren fått möjligheten att forska om frågor som jag tycker är både intressanta och viktiga i en miljö som jag trivts i. När den här avhandlingen nu går till tryck är det många som förtjänar ett extra tack.
Min handledare Rodney Edvinsson har alltid varit
uppmuntrande och hjälpsam. Det har också varit en ynnest att arbeta tillsammans med honom i Stockholms stadsarkiv och få lära sig hur historisk statistik går att utvinna ur snåriga
källmaterial. Min andrehandledare Lars Ahnland har under hela processen funnits tillhands och varit snabb med att läsa igenom och kommentera vad jag skrivit.
Torsten Söderbergs stiftelse finansierade det forskningsprojekt inom vilket jag blev antagen som doktorand.
I projektet fick jag möjligheten att arbete med flera duktiga kollegor. Klas Eriksson började som doktorand samtidigt som jag. Det har varit mycket givande att ha en kollega som arbetar med samma ämne men från ett annat perspektiv. Emelie
Carlsson kom in som forskarassistent och skänkte ny energi till det krävande arkivarbetet. Lili-Anné Aldman och Bo Franzén har ovärderliga källor till kunskap om Stockholms medeltida och tidigmoderna historia. Det har varit lärorikt att arbeta med och lära av dem alla.
Jakob Molinder var opponent på mitt halvtidsseminarium.
André Kallåk Anundsen var oponent på mitt 80- procentsseminarium. Båda kom med nyttig kritik och
hjälpsamma kommentarer vilket under kritiska skeden hjälpte mig att komma vidare med arbetet. Dag Retsö ställde upp som grönläsare och kom med flera viktiga påpekanden under slut- skedet av skrivandet.
Jag har haft så många smarta och fina doktorandkollegor genom åren. Några vill jag särskilt lyfta fram då vi följts åt under i princip hela doktorandtiden och som jag har haft extra mycket utbyte med. Olov Lundh, Daniel Stridh, Nina Krickel- Choi och Nicholas Olczak, samt samtliga medlemmar i historiematerialistiska kroppskulturgruppen.
Genom min tidigare doktorandkollega Erik Hegelund träffade jag Love Hansson. Tillsammans skrev vi tre en lärobok i R- programmering. Det var otroligt lärorikt och kul att få arbeta med båda.
Jag är också djupt tacksam för att ha fått chansen att vara fem år på Institutionen för ekonomisk historia och internationella relationer. Jag lär mig nya saker varje dag och det är nästan alltid roligt. Ett extra tack också till alla kollegor som genom åren bemödat sig med att läsa och kommentera alla de texter som jag presenterat på vårt högre seminarium.
Utanför universitet har jag haft den stora lyckan att omges av fina och smarta vänner. Samtalen, festerna, träningspassen och studiecirklarna. Att från Sofialäktaren se Djurgården ta poäng.
Särskilt tack till Johannes Fridholm för stöd och inspiration.
Hela mitt liv har jag haft min fantastiska familj med mig. Min farmor och farfar har lärt mig så mycket, inte minst vikten av att läsa och bilda sig. Min mamma Eva har alltid varit en kämpe och inspirationskälla. Nämnas måste också mina fem småsyskon – Jalma, Vendela, Hanna, Malin, Melker. Genom mammas Lars och pappas Monika har jag dessutom fått en fantastisk bonusfamilj: Matilda, Johanna och Joel. Plus allas partners och barn. Tack vare min fru kan jag också med glädje räkna in Ola, Rita, Sebastian och Idun till denna skara.
Sist men inte minst vill jag också rikta ett stort tack till min stora kärlek Tove. Jag kan inte tänka mig en bättre människa att få dela min doktorandtid med. Det är med glädje jag blickar mot framtiden, att få uppleva den med dig.
Contents
1. Introduction... 9
Research aim ... 12
2. Overview of the articles ... 13
Article 1 – A real estate price index for Stockholm, Sweden 1818–2018: putting the last decades housing price boom in historical perspective ... 13
Article 2 – A real estate price index for Stockholm, 1726–2020... 14
Article 3 – Trends, turbulence, exuberance. Stockholm’s real estate prices 1730–2020 ... 14
Article 4 – Women in Stockholm’s real estate market 1730–1850 ... 15
Article 5 – Inequality of real estate wealth in early modern Stockholm, 1730–1850 ... 16
3. Theory and earlier research ... 17
Real estate prices and economic instability ... 17
Stockholm’s real estate market, 1750-2019 ... 18
Dominating approaches to construct real estate price indices ... 22
4. Sources ... 26
Protocols of legal sales ... 26
Real estate quality ... 28
Example of a real estate transaction ... 29
5. Method ... 31
6. Concluding remarks ... 32
7. References ... 35
Archival sources ... 35
Internet Resources ... 35
References ... 36
8. Swedish summary ... 42
9
1. Introduction
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.
2. Overview of the articles
The thesis comprises five articles which are summarized in this chapter. They provide insights into Stockholm’s real estate market and address the research aims described above. All articles rely on the same source material – records of historical real estate transactions in Stockholm – but approach the material from different angles. Various topics, such as long-run price developments, financial instability, gender divisions, and class inequalities, are covered. Two of the articles are co-written. The other three are written by the thesis author alone.
Article 1 – A real estate price index for Stockholm, Sweden 1818–
2018: putting the last decades' housing price boom in historical perspective
Published in Scandinavian Economic History Review, vol 69.
Co-written with Rodney Edvinsson and Klas Eriksson.
The first article presents real estate price indices for the inner city of Stockholm from 1818 to 1875. To create the indices, a new database with information about around 10 900 sales is utilized. Several modern econometric methods are used, including a sales price appraisals ratio index and different variations of repeated sales indices. Both their theoretical underpinnings, earlier research, and their results in this study are compared and evaluated. Earlier research has argued that long-run real estate prices form a hockey stick pattern, with a long stagnation followed by a sharp upturn. That would have deemed the upswing we are experiencing historically unique.
An important finding of this study is instead that the period has got a historical predecessor in the years 1855–1887. Several similarities between the two periods of rapid growth are discussed. Both were preceded by institutional changes that increased the availability of credit, and both coincide with demographic growth. Previous studies have not been able to observe the early real estate price growth because their series are normally too short. This study does not only provide new insights into Stockholm’s historical development but also points toward the need for more studies on other cities.
Longer series might force us to reassess our idea of the present situation as being unique and provide lessons about the risk of today’s increasing prices.
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Article 2 – A real estate price index for Stockholm, 1726–2020
Co-written with Emelie Carlsson, Rodney Edvinsson and Klas Eriksson.
Forthcoming chapter in Edvinsson, R., Waldenström, D., and Jacobson, T.
(eds), 2022, Historical Monetary and Financial Statistics for Sweden, volume 3: Banking, bonds, national wealth and house prices 1420-2020, Sveriges Riksbank and Ekerlids Förlag.
The second article presents a real estate price index from 1726 to 1875. The database in article 1 is extended backward. Information from over 22 000 unique real estate transactions is utilized. As taxation appraisals are not available for the full period, we have used the repeated sales method to construct the index. To control for qualitative changes in the housing stock, the database is complemented with information from almost 8 000 building permit applications. The index is then linked to other existing indices so that Stockholm’s real estate prices can be tracked into the present.
Except for the different periods, articles 1 and 2 emphasized partly different aspects of the index construction. Article 1 includes a lengthy discussion about earlier research on methods for constructing real estate price indices. Article 2 digs deeper into the source material, discussing characteristics and difficulties when working with it. This has to a large extent to do with the more complicated nature of the earlier material when geographical locations often are harder to spot, and multiple currencies in use over the time period demand more effort into harmonizing price information expressed in different monetary units. Together, the two articles provide insights into the long-run real estate price development in Stockholm, general challenges and options when constructing price indices, and specific preconditions that face researchers interested in Stockholm’s real estate market. Both articles have resulted in price indices that are or will be made public. These will be of great resource for future research.
Article 3 – Trends, turbulence, exuberance. Stockholm’s real estate prices 1730–2020
The third article takes the index presented in article 2 as a point of departure to investigate long-run trends in real estate prices and periods of turbulence and exuberance in Stockholm’s real estate market between 1730 and 2020.
The long-time span provides two long periods of slowly growing or even stagnating, prices, during the years 1730–1850 and 1910–1985. These two periods can be contrasted with two other periods of rapid growth, in 1850–
1910 and 1985–2020.
The article finds that there are several episodes of increases followed by severe price falls. These periods are identified with a modified Bry and
15
Boschan-algorithm and were especially frequent during the late nineteenth hundreds. Furthermore, the data generating process of the time series for different sub-periods is assessed with a so-called generalized supremum ADF- test. That is a hypothesis test for mildly explosive roots in time series, whose presence can be interpreted as an indication of price exuberance, i.e., a real estate price bubble. Three such bubbles are identified, with peaks around the years 1918, 1990, and 2007. Together, the results identify the real estate bubble of 1990 as especially severe; it stands out both in its rapid buildup, but also in its economic consequences. This article relates directly to the second aim of the thesis.
Article 4 – Women in Stockholm’s real estate market 1730–1850
The fourth article studies women’s participation in housing transactions in early-modern Stockholm. Like articles 1 and 2, it utilizes the source material of registered real estate deals, but with an emphasis on the information about buyers and sellers. The study uses all transactions for every fifth year between 1730 and 1850, which gives information about gender, marital status, and, often, occupational titles of the participants. In total, the database consists of around 3 300 transactions involving more than 5 400 individuals.
The studied period is interesting as it is situated between two important reforms: the law of 1734 and the gradually increasing economic freedom for women during the late 1800s. It is a time when married women and never- married women had limited ownership rights. By law, they were to be under legal guardianship. On the other hand, previous research indicates that demographic and economic changes during the same period enabled some women to act more independently. Stockholm’s real estate market provides a useful case for the study of the tension between formal and informal institutions.
The article finds that more than half of all real estate transactions involved at least one woman. Furthermore, it is shown that registration practices hid women buyers that bought property together with their husbands. The study also finds that while wives increasingly came to act together with their husbands, the involvement of spinsters and widows became more frequent.
Even if spinsters were subordinated by law to a guardian, many started to independently invest in real estate.
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Article 5 – Inequality of real estate wealth in early modern Stockholm, 1730–1850
The fifth and last article investigates inequality in real estate wealth between classes in Stockholm from 1730 to 1850. It employs the same database as article 4. By using the occupational statuses of participants in housing transactions, their class belongings can be mapped. In this way, wealth inequalities between real estate owners can be assessed. During this time, Stockholm was the capital of Sweden as well as an important city for commerce and manufacturing. But, at the same time, the city was stagnating in both economic and demographic growth.
Previous research has used real estate wealth as a proxy for a general assessment of wealth inequality in early modern Stockholm. The results have however been contradictory, with some researchers arguing for a levelling between classes, some that it increased, and others that there was no change.
This article finds that while inequality in real estate wealth decreased, there is weak evidence for a levelling between classes except for the fact that the aristocracy lost market shares. Furthermore, it argues that a rising ratio between real estate wealth and incomes, combined with non-widespread real estate ownership, probably counteracted the equalization between classes.
Articles 4 and 5 together address the third aim of the thesis, to investigate inequalities in real estate ownership by analyzing gender, civil status, class, and nobility.
17
3. Theory and earlier research
The aims of this thesis relate to several fields in economic history. The research literature that it has to position itself against is relatively vast. Each article incorporates a discussion of relevant theory and earlier research. But some overarching themes are important for the thesis as a whole and will therefore be discussed in this section.
Real estate prices and economic instability
A major theme in the first three articles of this thesis is the development of real estate prices and periods of price turbulence. Behind this lies a theoretical insight that house prices may have a severe impact on the rest of the economy.
Therefore, it is important to dwell on this supposed connection.
Real estate prices affect the real economy mainly through two mechanisms:
1) construction activity tends to rise if house prices increase faster than production costs and, 2) an improvement in the household sector’s balance sheet can produce wealth effects that increase aggregate demand. Both mechanisms work in the opposite direction if prices fall.16
The balance sheet mechanisms concern people’s wealth portfolios and are mediated through financial markets. Real estate is used as loan securities, and rising prices consequently increase the opportunities to borrow money. Loans can then be used for residential investments or to buy other goods. Therefore, rising real estate prices are together with growing private indebtedness associated with higher consumption. Reversely, falling prices have a negative impact on aggregate consumption as wealth effects are canceled. A more pessimistic expectation of future economic development makes households less inclined to both consume and invest.17
However, this effect is dependent on the financial institutional setting that regulates the access to credits. Given that housing is a major part of household wealth and an often used collateral for loans, house prices strongly impact the macroeconomy and financial markets.18 If mortgages are increasing in number and volume, households become more exposed to price fluctuations. The asset
16 Eurostat, Handbook on Residential Property Prices Indices (RPPIs).
17 Girouard, ‘Housing and Mortgage Markets: An OECD Perspective’; Goodhart and Hofmann, House Prices and the Macroeconomy; Hilbers, Lei, and Zacho, ‘Real Estate Developments and Financial Sector Soundness’; Miles, Housing Financial Markets and the Wider Economy; Swartz, ‘Finansiella Kriser Och Depressioner’.
18 Goodhart and Hofmann, House Prices and the Macroeconomy.
18
value of houses has become decisive for the balance sheets of a growing number of households, and so have repayment conditions and rent levels.19
The importance of the balance sheet position of investors, households, and enterprises has been most famously theorized by Minsky. His insights have been employed by various researchers to analyze house prices and related financial risks.20
According to Minsky, enterprises in times of economic growth are rewarded with higher profit when they take on higher debt. This creates an incentive for them to increase their debt level to compete with other actors on the market. As long as the business cycle is good, this leads to greater prosperity. But as increased debt levels are a means for increasing profit, there is a tendency toward greater speculation inherent in the economy. This may eventually lead to the buildup of a speculative bubble.
The thesis of Minsky is that stability and growth create the incentives for bubbles, thus creating the preconditions for future instability. If the business cycle turns and the expectation of the future becomes pessimistic, this will negatively affect inflated asset prices. And falling asset prices will lead to bad balance sheet positions for those who have taken on large debts to buy assets.
As the worsening balance-sheet positions harm investments and demand, through the mechanisms described above, this might cause a downward spiral.
Falling prices strengthen depressive tendencies in the real economy, while depressive tendencies in the real economy put even more downward pressure on prices.21
Minsky’s financial instability hypothesis is not explicitly tested in any of the papers in this thesis. It does however provide a theoretical ground from which we can understand why real estate prices are important to study to assess the wider economic history. Now, the nexus between financial markets, the construction sector, and the real estate market has undergone many changes over the last 300 years. These must be taken into consideration to assess the meaning of historical price changes.
Stockholm’s real estate market from a historical perspective
Stockholm was a city in economic and demographic stagnation during large parts of the period 1750-1850. The causes for this were numerous. The city’s importance as a central town for trading diminished as the Baltic trade lost
19 Lapavitsas, Profiting without Producing. How Finance Capital Exploits Us All;
Dymski, ‘Bank Lending and the Subprime Crisis’.
20 See discussion in Kincaid, ‘Marx after Minsky: Capital Surplus and the Current Crisis’.
21 Minsky, ‘Uncertainty and the Institutional Structure of Capitalist Economies’;
Minsky, Stabilizing an Unstable Economy.
19
importance when the Atlantic trade grew.22 At the same time, its textile industry was to a large extent out-rivaled by other Swedish towns, mainly Norrköping. Lars Magnusson notes that between 1816 and 1845, textile production declined by 60 percent in Stockholm, while it increased by 460 percent in Norrköping.23
The stagnation is visible in figure 1, which depicts the population of Stockholm from 1730 to 2020. Even more telling is that the population level during this period was upheld by immigration. Due to the high death rates, the city was not able to reproduce the number of inhabitants by itself.24 In this period, few new houses were built. The total number of houses in 1766 was 4 462, and by 1782 the number had fallen to 4 137. The number of houses and plots in 1828 was 4 526.25
During this period, the construction of new houses was mainly paid for by rich merchants and industrialists. They were often built to inhabit the owner and his family, and maybe a business and/or tenants.26 The building contractors had no modern financial market to turn to. The private credit market was the major credit market, and personal relations were probably more important than banks or other financial institutes for access to money.27
With the industrialization of 1850, Stockholm experienced economic and demographic growth.28 Among many fundamental changes, the guild system was abolished in 1846. That allowed anyone to set up a construction company.
These changes had a huge impact on the housing sector, as smaller entrepreneurs set up construction businesses to profit from the growing housing demand. They often lacked the capital for investments. Instead, they relied on credits – mainly from smaller financial institutions, private loans, and suppliers of raw materials and labor – to finance their projects.29
22 Söderberg, Jonsson, and Persson, A Stagnating Metropolis. The Economy and Demography of Stockholm, 1750-1850.
23 Magnusson, Sveriges ekonomiska historia, 216; For a discussion on Norrköpings success and Stockholm failure when it comes to textile production, see for example Nyberg, Kommersiell kompetens och industrialisering; Schön, Från hantverk till fabriksindustri.
24 Stockholms utredningskontor, ‘Befolkningen i Stockholm 1252-2005’; See also discussion in Söderberg, Jonsson, and Persson, A Stagnating Metropolis. The Economy and Demography of Stockholm, 1750-1850.
25 Kungliga Statistiska Centralbyrån, Statistisk tidskrift.
26 Perlinge, Bubblan som sprack. Byggboomen i Stockholm 1896-1908;
Hammarström, ‘Urban Growth and Building Fluctuations. Stockholm 1860-1920’.
27 Nyberg, ‘The Early Modern Financial System and the Informal Credit Market’, 18.
28 Ahlberg, Stockholms befolkningsutveckling efter 1850; Cederqvist, Arbetare i strejk. Studier rörande arbetarnas politiska mobilisering under industrialismens genombrott. Stockholm 1850-1909; Gustafson, Industrialismens storstad. Studier rörande Stockholms sociala, ekonomiska och demografiska struktur 1860-1910.
29 Perlinge, Bubblan som sprack. Byggboomen i Stockholm 1896-1908; Gejvall, 1800- talets stockholmsbostad, 39ff.
20
Figure 1: Population of Stockholm, 1730–2020.
Source: Utrednings- och statistikkontoret (2005) and Statistiska centralbyrån.
At the same time, the financial sector underwent major changes. Between 1824 and 1846, several banking acts were passed that together marked a transition from a mercantilist legislation toward a more liberal regulation.30 The changes accelerated, eventually leading to what has been characterized as a financial revolution, taking place somewhere between 1850 and 1870. An important part of this revolution was the liberalization of the banking system, with the banking act of 1864 as an institutional milestone. 31 Before, banks had to have a new charter accepted by the Crown every ten years. The new act standardized this procedure and turned charters prolongation into a formality.
Moreover, the act stipulated the rights of holders of bank liabilities and an absolute right to redeem these at the bank of issue. Whit the new banking act, financial services rapidly increased in Sweden.32 Between 1860 and 1900, the volumes on the Swedish credit market almost doubled every tenth year.33
To finance the urban construction sector, mortgage institutes had been used least since 1865. By the turn of the century, mortgage institutes financed between 15 and 20 percent of investments in urban buildings, insurance companies had the same share, commercial and the national bank held around
30 Andersen, The Evolution of Nordic Finance, 144f.
31 Ögren, ‘The Swedish Financial Revolution: An In-Dept Study’, 9f.
32 Ögren, 10f.
33 Petersson, ‘Cooperation, Interbank Markets and Bank Industry Networks: The Growth and Characteristics of Swedish Bank Lending, 1860–1910’, 64.
21
20 percent, and savings banks around 25 percent. During and after the international financial crisis in 1907, interest rates grew. To ensure the availability of cheap credits for urban housing, Stadshypotekskassan was founded by the state in 1909.34
From 1850 onwards, the construction activity in Stockholm was driven by the increase in economic activity in the wake of the industrialization process and the dramatic population increase that accompanied it. This building activity had a clear cyclical pattern which correlated with the general economic activity and the availability of credits.35 Economic turmoil could quickly turn into a wave of bankruptcies as the small building companies were dependent on a constant flow of credits to maintain production.36 Since Sweden was dependent on capital import during the early industrialization, the economy was also sensitive to international financial turmoil.37
After experiencing several financial crises, the state took on a more active role from the 1930s and onwards. This was, of course, partly due to the democratization of Sweden and the beginning of the political dominance of the Social-democratic labor movement. From early on, housing was targeted as an important sector to dampen business cycles. The central bank, Riksbanken, was used to transfer financial risk away from the construction enterprises to the state in exchange for them building cheap rental apartments and cooperative houses (bostadsrätter).38
Even if this housing policy was unique for Sweden, financial regulation was a global phenomenon. In most high-income countries, these regulations were dismantled mainly during the 1980s, which many theorists describe as an epochal change in the history of capitalism. Financial incentives had an increasing impact on real production.39 In Sweden, this process more or less coincided with the abandoning of a more interventionist housing policy.40 One
34 Larsson, ‘The State and the Financial System: Regulation and Regime Change around 190’, 172.
35 Hammarström, ‘Urban Growth and Building Fluctuations. Stockholm 1860-1920’.
36 Hammarström.
37 Kock, Kreditmarknad och räntepolitik 1924-1958; Edvinsson, ‘Major Recessions in Sweden 1850–2000’.
38 Larsson and Söderberg, Finance and the Welfare State Banking Development and Regulatory Principles in Sweden, 1900–2015; Larsson, Staten Och Kapitalet;
Englund, ‘Bostadsfinansieringen och penningpolitiken’; Jonung, ‘Kreditregleringens uppgång och fall’.
39 Krippner, Capitalizing on Crisis. The Political Origins of the Rise of Finance;
Stockhammer, ‘Financialization and the Global Economy’; Wray, ‘The Rise and Fall of Money Manager Capitalism’.
40 Strömberg, ‘Sweden’; Stenfors, ‘Financialisation and the Financial and Economic Crises: The Case of Sweden’; Stenfors, ‘Swedish Financialisation: “Nordic Noir” or
“Safe Haven”?’; Jacobson, .... ‘.... Och Mödan Gav Sin Lön. Om Bostadspolitik Och Bostadskooperation i Stockholm 1870-1930’.
22
of the conspicuous results of this in both Sweden and on a global level is the rise of household indebtedness based on mortgages.41
The above analysis of the trajectory of Stockholm’s real estate market in relation to construction activity and financial markets is obviously simplified.
Still, it points toward two periods under which the interrelation between the real estate market and the financial sector was more important: first from around 1850 to 1930, second from 1980 until today. During both these periods, financial deregulations created access to private credit, that found its way to the real estate market. Given the financial instability hypothesis outlined in the previous section, one might expect that price turmoil would have been more regularly occurring in these periods and possibly had a worse real economic effect.
Dominating approaches to constructing real estate price indices
Previous sections have outlined the theoretical and historical relationship between real estate prices and the real economy. A take-away from that is the importance of real estate price development. In recent years, the number of studies attempting to assess the long-run trajectory of real estate prices has increased. Still, only a few studies exist that cover periods before the twentieth century and they typically employ similar methods.
As a major part of this thesis consists of constructing new price indices, it is interesting to see how many other such studies there are. But, to be able to assess them, an understanding of the most common methods used. These methods will be briefly described in this section.
Three dominating approaches exists for real estate price index construction:
hedonic regression, repeated sales (RS) analysis, and sales appraisals ratios (SPAR).
Hedonic regressions include relevant indicators of the qualitative characteristics of the properties sold and estimate a regression model. The RS method uses information about the price changes between sales of individual properties. This requires the assumption of constant quality of individual properties between each sales pair; it is often controlled for by gathering information about renovations. The SPAR method combines sales data with taxation records for each property included in the dataset. Appraisals of taxation values between taxation years are supposed to control for qualitative changes in the properties sold.
41 Waldenström, ‘The National Wealth of Sweden, 1810-2014’; Poppe, Collard, and Jakobsen, ‘What Has Debt Got to Do with It?’; Karacimen, ‘Dynamics behind the Rise of Household Debt in Advanced Capitalist Countries: An Overview’; Turk,
‘Housing Price and Household Debt Interactions in Sweden’.
23
Table 1 summarizes the specific kind of data each method requires. They all use some kind of data that reflects the market price of properties. Normally, this can be derived from some kind of transaction record archived by a state or city institution.
It is not in theory necessary to identify individual properties in hedonic regressions, which is the case when using RS analysis or SPAR. Hedonic regressions always require numerous other variables that together describes the qualitative characteristics of the sold item. This might include area, heating, location and so on. What characteristics to include is not predetermined. When constructing historical series, data availability often sets the limits. No other variables are needed for the RS or SPAR methods.
Except for transaction records, hedonic regressions do not require other types of sources. In practice, however, one might have to obtain information that is not part of the transaction records in order to be able to do a regression.
In those cases, other sources might be necessary. In theory, the RS method also only requires a market price and property ID. But in practical analysis one often needs to control for possible qualitative changes in the real estate stock in-between sales. In those cases, other sources might be necessary. The SPAR method requires appraisal values. They are sometimes included in transaction records, but most often have to be collected from another archive.
Table 1: Source requirements of different methods.
Method Market price
Property ID
Qualitative characteristics
Other sources Hedonic
regression
Transaction records.
No. No. Not
necessarily.
Repeated sales
Transaction records.
Yes. No Not
necessarily.
Sales appraisals ratio
Transaction records.
Yes. No. Appraised
value (often taxation value).
Long run real estate price series are uncommon. Most series start around 1960 or later. Series that stretches back into the 1800s are rare. This section provides a brief overview over existing long-run indices. The time span covered for
24
different cities are summarized in Figure 2, with their linetype indicating which method is used.
As can be seen, only Stockholm’s index also covers the Medieval age. It was constructed by Franzén and Söderberg and covers the years 1300–1600.
Due to the character of their source material, they were not able to use any of the three methods listed above. They instead rely on weighted median values, divided into stone houses and wooden houses.42
Other studies on Swedish cities includes real estate indices for Gothenburg for the years 1875 to 1957;43 Stockholm between 1818 to 187544 and 1875 to 1957.45 In all three cases, a SPAR method were used.46
Karagedikli and Tunçer have constructed a price index for Ottoman empire Edirne, 1720–1814. They estimated a hedonic regression with numerous variables that gives information about house quality, neighborhood and geographical location.47
One of the most famous indices is Shiller’s index for the US 1890–2014.48 His index is a combination of different indices constructed with different methods. It has been criticized for applying partly outdated methods.49 Recently, Jonathan D. Rose has presented a new repeated sales index for Baltimore that cover the years 1880–1953.50
Deeter, Duffy and Quinn (2016) have estimated real estate prices in Dublin 1708–1949. They use a hedonic regression that provides information about location, if a garage or garden was included and if the transaction included numerous properties.51 Ronan Lyons employs a similar method for Dublin 1900–2015 but adds the size of sold dwellings to his model.52
One of the first studies that attempted a repeated sales method was conducted by Gaston Duon. He constructed a house price index for Paris 1840–1944 already in 1946. Duon’s results have been used by Friggit. This index has been linked to two other Paris indices. Already in 1894,
42 Franzén and Söderberg, ‘Hus, gårdar och gatubodar. Fastighetspriser i Stockholm och Arboga 1300–1600’.
43 Bohlin, ‘A Price Index for Residential Property in Göteborg, 1875-2010’.
44 Edvinsson, Eriksson, and Ingman, ‘A Real Estate Price Index for Stockholm, Sweden 1818–2018’.
45 Edvinsson, Blöndal, and Söderberg, ‘A Price Index for Residential Property in Stockholm, 1875–2012’.
46 For comparison, all studies also constructed an index with a repeated sales method.
47 Karagedikli and Tunçer, ‘House Prices in the Ottoman Empire’.
48 Shiller, Irrational Exuberance.
49 Lyons, ‘Measuring House Prices in the Long Run: Insights from Dublin,1900- 2015’, 5.
50 Rose, ‘Reassessing the Magnitude of Housing Price Declines and the Use of Leverage in the Depressions of the 1890s and 1930s’.
51 Deeter, Duffy, and Quinn, ‘Dublin House Prices’.
52 Lyons, ‘Measuring House Prices in the Long Run: Insights from Dublin,1900- 2015’.
25
Georgesd’Avenel presented a real estate price index for the centre of Paris 1200–1800. Duon built on that material to in 1946 present an index for Paris 1625–1850. d'Avenel’s series builds on transaction prices averaged over 25- years periods, and he did not control for changes in the housing stock. Duon presented average prices calculated over 10 to 50 years for the years 1625 to 1790. Between 1790 and 1850, he used the repeated sales method to calculate an index for 10 years periods.53 Paris stand out for its long indices. But an annual index building on modern econometric methods exists only after year 1840. The price changes 1200–1840 should be used with caution.
For Beijing, Raff, Wachter and Yan have constructed an index for the period 1644–1840. They use a hedonic regression with information about number of rooms, geographical location, number of court yards, if the house had a well and building material.54
Figure 2: Cities for which long run real estate price indices exists.
Another famous study is Eichholtz’ on the Herengracht district in Amsterdam where he uses a RS index.55 A price index for the whole of Amsterdam has recently been constructed by Korevaar. He use a new database from the
53 Friggit, ‘Comparing Four Secular Home Price Indices’.
54 Raff, Wachter, and Yan, ‘Real Estate Prices in Beijing, 1644 to 1840’.
55 Eichholtz, ‘A Long Run House Price Index’.
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Amsterdam City Archive that has compiled all documented legal sales in Amsterdam between 1563 and 1811. Korevaar apllies the RS method.56
Eitrheim and Erlandsen use a RS method to estimate real estate price indices for four Norwegian towns from 1819 to 1989. The cities are Oslo, Bergen, Trondheim and Kristiansand. To control for qualitative changes, all properties for which the plot size is changed or a new house has been built are removed from their sample.57
It is evident from this summary that the length of the Stockholm index will be coparable only to Paris.
4. Sources
Protocols of legal sales
The most important data for this dissertation are the legal sales of buildings in Stockholm from 1730 to 1874. Information about these sales can be drawn from numerous sources, all registered by the administrative body of the city.
The information has been collected and gathered in a database by three colleges and myself.58
Sales of land and buildings have been documented in Sweden for a long time. Both Magnus Eriksson’s city law from 1349 and the old medieval provincial laws (landskapslagarna) establish rules for how these sales are to be processed. By both laws, relatives of the seller had the right to intervene after a transaction was settled and claim their right to buy the property instead.
Not until after the sale was announced (uppbud) three times at the local court (ting), the transaction was sealed.59 The convention to announce real estate sales lived on from medieval times into the 19th century, first to protect family rights and later to tax citizens. The main archival sources are summarized in Table 2 below.
Two archives are of special interest for this thesis and both originates from Stockholm’s city council (Stockholms rådhusrätt): Stockholms magistrat och rådhusrätt 1600-1849 (SMR) and Stockholms rådhusrätt, Avdelning 1 1850- 1873 (SR1). They contain information about who bought and sold a house, the
56 Korevaar, ‘Reach for Yield and Real Estate’; A discussion about housing quality in the context of historical rents in Amsterdam can be found in Korevaar, Eichholtz, and Lindenthal, ‘Long Run Affordability and (Ine)Quality’.
57 Eitrheim and Erlandsen, ‘House Prices in Norway, 1819–1989’.
58 Except for me, Rodney Edvinsson, Klas Eriksson and Emelie Carlsson are also been part of the project.
59 Wikström, ‘Fastighetsforskning i stadsarkivet: en översikt av källmaterialet intill 1850’, 34.
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size of the plot, if it was a stone house or a wooden house (gård or trägård), price and debt relations between the contractors.60
The city administration was reorganized in 1660 and from thereon records of house transactions can be found in the civil records (civilprotokollen). Land and house transactions are from 1679 registered separately in the so-called minutes of transactions (uppbudsprotokoll).61 Civilprotokollen and minutes of transactions included identical notations about house transaction until the mid- 1700s.62
The statistical methods that we have used to create a price index all require that each sale can be connected to an individual house. But before 1720, the city blocks had no official names, even if informal street names and other geographical information were occasionally included. This information can be combined with the size of the plot. With the help of old maps and so-called ground plot books (tomtböcker), the house can be identified. One problem with maps is that they sometimes include planned buildings that never were constructed. Nevertheless, because we start with the sales of existing houses, the risk of identifying a house on the map that never existed is small.63
The geographical information provided by minutes of transactions was initially sparse. All confirmed sales were registered in the protocol of the city’s registry (stadens registratur) and information on the location was often included there. Therefore, those protocols are used as far as 1725.
Sometimes block numbers are not included making individual houses hard to separate. Again, maps can be used to locate the buildings. Another great resource is the numerous registers that have been compiled and digitalized by Stockholm’s city archive through which buildings sometimes are identifiable.64
For the years 1800 to 1839, a register of all sold properties is available, which rests on the minutes of transactions, but is more compactly written and therefore more easily accessible. Since 1800, there is no longer any information on whether the houses sold were made of stone or wood.
60 Before 1600, information about real estate transactions can be obtained from the city’s memory books (tänkeböckerna). An introduction to them can be found in Pettersson, Stockholms stads tankeböcker. Funktionell texthistoria 1476-1626; For a discussion about memory books as a soruce material for house sales, see Franzén and Söderberg, ‘Hus, gårdar och gatubodar. Fastighetspriser i Stockholm och Arboga 1300–1600’; See also Franzén, Sturetidens monetära system, 26ff.
61 1716, 1719 and 1721 are missing.
62 Wikström, ‘Fastighetsforskning i stadsarkivet: en översikt av källmaterialet intill 1850’, 43f.
63 Stockholm’s city archive provides a large selection of digitalized maps and ground plot books on their website. They are also to be found in the archive, see D5 Tomtböcker and Register över handritade kartor.
64 See Register över fastighetsuppbud och upplåtelser 1600-1649 and Fastighetsregister 1675-1875.
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Table 2: Main archives used in the present thesis.
Period Type of house
Block names
Source Series Archive
1725- 1799
Yes Yes Lagfarts- och
uppbudsprotokoll
A 6 a Stockholms stadsarkiv 1800-
1839
No Yes Förteckning över
uppbundna fastigheter
D 4 Stockholms stadsarkiv
1840- 1850
No Yes Lagfarts- och
uppbudsprotokoll
A 6 a Stockholms stadsarkiv 1851-
1874
No Yes Lagfartsprotokoll A 1 A Stockholms stadsarkiv
All blocks in Stockholm were given new numbers in 1810. Therefore, all numbers before 1810 must be converted. This has been achieved with the help of the city archives register “Registernyckel för fastigheter 1730 och 1810”.
This register also connects each block with a street name and number.
Combining this information with the comparison of historical street names from old maps, each block can be geographically located.
The database produced does not cover all sales: first of all, non-legal sales are obviously not included. This only applies to cases where both the seller and the buyer had an interest in hiding the transaction from authorities and this number is probably very small. Secondly, many of the sales did not include the whole property but only parts of it. Our sources do not provide information about what it could mean to buy parts of a property, which is why these sales have not been included. Thirdly, houses that have been impossible to identify have been excluded. This problem concerns almost exclusively houses in the poorer, more peripheral, parts of the city.
For each sale, it is also possible to attain information on the name of the buyer and seller and their formal occupational status. This makes it possible to discern any systematic trends in gender, marital status, and class composition among dealers of real estate in early modern Stockholm. From titles, it is also possible to determine if a participant was wellborn or not.
Real estate quality
A major problem when constructing house price indices is to separate price increases from quality changes. In our data, we can separate wooden houses
29
from stone houses between 1730 and 1800. Stone houses yielded, on average, higher prices. So, if someone bought a wooden house and replaced it with a stone house, it might look like there was a price increase when it could actually be a different house that was sold. Since this information was only available for parts of the sample, we have not used this information when constructing the price index in 1730–1875.
Another method is to compare the Old Town with the rest of the city. The Old Town has not changed very much since the seventeenth century and should be less sensitive to quality changes. This is done in both the articles presenting our price indices.
In the article describing the price index for Stockholm 1730–1875, we used information from an archive over building permit applications. Before starting to build new houses or engage in large-scale renovations, the agent had to apply for a building permit. The applications are archived from 1713 to 1875 in the archive of Byggnadsnämndens expedition och stadsarkitektkontor, which includes both planned new buildings and renovations. When we, in the paper A real estate price index for Stockholm 1730–1875, estimated an index with a repeated sales method, the permits were used. Each sales pair for which a building permit application had been handed in between the two sales was removed from the sample.
Another way is to look at the ratio of price and taxation value. The latter is supposed to account for qualitative changes. Tax records are easily accessible from 1856 in the directory of Stockholm (Stockholms adresskalender).65 From 1743 and onwards, a “window tax” was collected (houses were taxed based on how many windows they had). The tax records provide assessment values.66 A price-to-ratio method is employed in one of our papers for which we have used information from Stockholms adresskalender, the address calendar of the city.
Example of a real estate transaction
To understand how the source material may look, a picture of a legal sale together with transcription is shown in Figure 3. This one was written on 14 July 1800 and concerns a house in the northern parts of the inner city.
In Swedish, it reads as follows:
Jungfru Anna Elisabeth Brefving låter uppbjuda, en å Norrmalm vid Norrtullsgatan uti qwarteret Trumpetaren under n. 127 å ofri eller Stadens
65 Stockholms stad, ‘Stockholms adresskalender’.
66 Stockholms magistrat- och rådhusrätt, F 10, Fastighetsvärderingar and
Byggnadsnämndens expedition och stadsarkitektkontor, F 1 AA, Bygglovsritningar 1713–1874.
