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There are other income factors, besides the aggregate national income and labour income factors discussed in Ch. 4, that contribute as much uncertainty to the incomes of individuals and organizations as do many risks currently traded in financial markets. If those who retail insurance policies against risks of changes in values of claims on incomes or service flows are to be able to tailor their insurance to the various exposures that their different clients have to these risks, they will want to layoff in hedging markets the risks of changes in these income factors that influence them because they are providing the insurance policies. This chapter considers some of the most salient of these other markets: real estate, unincorporated business, and privately held corporations, consumer and producer price index futures, agriculture, and art and collectibles. It also presents some ideas on systematic approaches to finding other markets, including modelling the tendency for co‐movement of incomes and inferring the underlying factors, i.e. looking for the major risk factors to incomes for which new markets would be most useful.

This chapter provides an introduction to public real estate markets and investments. The chapter begins by discussing the types of real estate and advantages and disadvantages of including real estate in an investment portfolio. This section distinguishes between private and public markets and debt and equity investments. The next section discusses the book’s purpose and the scope of the coverage, which focuses on foundations of real estate and both public debt markets and public equity markets. This is followed by a discussion of the book’s distinctive features and intended audience including real estate investors and professionals as well as academics and students. A brief synopsis of the remaining 13 chapters follows. The final section offers a summary and conclusions.

Although long obscured by the Great Depression, the nationwide housing “bubble” that appeared in the early 1920s and burst in 1926 was similar in magnitude to the recent real estate boom and bust. Fundamentals, including a post-World War I construction catch-up, low interest rates and a “Greenspan put,” helped to ignite the boom in the twenties, but alternative monetary policies would have only dampened not eliminated it. Both booms were accompanied by securitization, a reduction in lending standards, and weaker supervision. Yet, in contrast to the recent crisis, the bust in the twenties, which drove up foreclosures, did not induce a collapse of the banking system because incentives to financial institutions induced them to limit leverage and the accumulation of mortgage debt on their balance sheets.

Chapter 1 sets the scene in Osceola County, Florida. The chapter goes back to the 1970s, to the formation of an international consortium of real estate developers—“the Mexican Millionaires”—who used real estate marketing strategies and the visceral imagery of luxurious country club living to attract Puerto Ricans to the Buenaventura Lakes suburb. This historical chapter shows how instrumental these corporate partners were in fostering an awareness of Greater Orlando’s real estate opportunities on the island of Puerto Rico and in the Puerto Rican concentrated communities of New York and Chicago, and directing the flow of mainland and island Puerto Ricans towards Greater Orlando instead of the traditional gateway cities. As a result, they created one of the largest Puerto Rican-concentrated suburbs in Central Florida.

This chapter addresses some common questions from homeowners: Is the current boom in home prices temporary? Is a crash possible? And if prices do fall, will they come back up fairly soon, or will they stay down for many years? It considers very long-term data in home prices in various countries. It shows that there is no long-term upward trend in real (inflation-adjusted) home prices. The recent run-up in prices is a bubble, and the only question is whether it will end with a soft landing or, on the contrary, with a sharp correction. With such a large degree of irrational overpricing, a sharp fall in prices is more likely.

This chapter provides a brief overview of real-estate prices, describing the importance of this asset class for the economies worldwide, from the US and the UK to Asian and Pacific countries. The difference between residential and commercial real-estate is emphasized early on in this introductory chapter. The chapter ends with some discussion of empirical characteristics of real-estate prices time series through some models, highlighting the different nature of this asset class as compared with other established financial asset classes such as equity, foreign exchange, or fixed income.

A strand of literature contends that the housing market is cyclical. Evidence in recent episodes of housing price boom-busts from the United States and Europe supports this belief. This chapter documents housing price cycles from three countries#amp;#x2014;Korea, China, and the United States#amp;#x2014;in terms of their underlying determinants, empirical evidence, and public policy implications. The comparison shows that, along with market fundamentals such as household income and demographic shifts, policy-driven cycle amplifiers are important. The major ones are urban land use, housing supply, and residential mortgage lending. The chapter discusses specific policy issues to combat a contagious housing price cycle. These include resolving a chronic housing shortage involved with rapid urbanization, balancing macro-prudence and financial inclusion in regulating mortgage lending, and monitoring and regulating sources of excessive market volatility.

This introductory chapter provides a background of America's real estate markets. Already by 1890, nearly half of U.S. households were owner-occupied, and a staggering four-fifths of farming households headed by people over the age of 60 were owner-occupied. Such high levels of homeownership required a massive amount of credit to circulate, and in the right way. This was no easy feat. Mortgages are risky and costly transactions, ones that many banks avoided, either partially or completely, for long periods of time. America's mortgage markets were also endemically unstable and inefficient. American mortgage markets are therefore old, expansive, morally supercharged, and highly consequential. All of this is ideal for a study of the social life of finance. Mortgage markets' long and troubled history also provides a context in which to understand the two cases at the heart of this book: securitization and federal credit. Both evolved as ways to manage the risks and costs associated with lending and, in so doing, improve the flow of credit across the nation.

The chapter explores business cycles and growth dynamics in emerging East Asia within an ultra-low interest rate environment from the perspective of the monetary overinvestment theories of Mises and Hayek. It argues that, given a low interest rate environment in the large industrialized countries, the likelihood of overinvestment and therefore a crisis in emerging East Asia has increased independently from the exchange rate regime. Overinvestment can take the form of unsustainable booms on stock and real estate markets (as in Southeast Asia prior to the Asian crisis) or the misallocation of funds due to subsidized state-directed capital allocation (as is currently occurring in the People’s Republic of China). If further credit expansion counteracts a crisis triggered by a preceding overinvestment boom, it paralyses growth in the long term, as Japan experienced.

This chapter describes major structures built from 1920 to 1934, which were dominated by towers that resulted from an explosive real estate market that challenged code restrictions on height and that took fuller advantage of powered construction and circulation. The height restrictions imposed by the 1893 Code foreclosed any serious attempt to build higher than 180 or, later, 260 feet. But after World War I, a loophole in Chicago's ordinance that permitted “Spires, Towers, and Domes” sparked a controversy and then a race for new heights. The sudden appearance of the 556-foot Chicago Temple in the center of the Loop agitated property owners, architects, and engineers into a new quest for height—at first within the limits of the spire and tower loophole and then to the relaxed requirements of a new zoning ordinance that was tailor-made for a new, powered skyscraper era.

This chapter reviews studies on the factors behind China’s booming real estate market. It discusses the role of large state-owned enterprises that are directly controlled by the central government; the impact of the local political economy on land prices; and the volatility of house prices. Although an abrupt collapse in house price is unlikely to irreparably damage China’s financing and banking industry, a fall in property prices will mean a significant loss of wealth for many Chinese, endangering Chia’s prospects for future economic growth. The chapter concludes by addressing the question of how to better manage China’s housing market risk under uncertainty.

During the 1980s, the Washington DC metropolitan area was especially attractive to lenders of U.S. dollars and major U.S. banks that were seeking access to the regional money market. The largest Salvadoran banks began to consider how to move up the trail of remittances to obtain the U.S. dollars earlier in an effort to better control the market of floating exchange rates in El Salvador. Two such banks were Banco Cuscatlán and Banquito. This chapter examines competing conceptualizations of the pueblo of Intipucá in El Salvador, showing that they grew out of the contradictions of the remittance and migrant circuit which itself was a product of the coffee and cotton systems in the country. It looks at the collapse of Banquito and numerous other DC banks, along with the real estate market collapse in the DC area, pending changes in U.S. immigration law that threatened to deport illegal migrants in DC, and the violence which erupted in Mount Pleasant in May 1991 following the shooting of a young Salvadoran named Daniel Gómez.

This chapter discusses Tishman Speyer's purchase of Stuyvesant Town for $5.4 billion, which was so large that there was not a single bank or other investor able to make a loan of such a significant amount. It describes enthusiastic investors looking to cash in on the real-estate market that lent Tishman Speyer and BlackRock what they needed to buy Stuy Town from MetLife. It also notes the appraisal that put the value of Stuy Town and Peter Cooper at $1.8 billion in 2010. The chapter highlights the $3 billion first mortgage on Stuy Town as the primary loan that paid for the property and when Tishman Speyer defaulted, the lenders were entitled to get paid back before anyone else. It explains how the $3 billion first mortgage had been packaged into five sets of other mortgages around the country and sold to investors as bonds.

This chapter describes the impact of the Great Depression on the Chicago real estate market. The gravity of the Depression can be understood by what was not built. For instance, Walter Ahlschlager had planned a massive complex of office towers, showrooms, lodging, and leisure facilities known variously as Crane Tower, Chicago tower, and the Apparel Mart. Announced by a group of apparel executives in June 1928, the scheme proposed a seventy-five-story setback tower atop a base that was to span railyards between the extended Randolph Street and Wacker Drive. However, nothing more was heard of the project after the October crash. The idea of a city rising above the Illinois Central yards attracted other schemes but no serious investment until after 1950.

This chapter considers the US housing bubble. Over the last eight years, home prices have risen by almost 50 percent in real terms. The run-up has not been even. In large parts of the country (most of the South and Midwest) there has been little real appreciation in house prices. In contrast, the run-ups in the bubble areas (the West Coast, the East Coast north of Washington, DC, and Florida) have been close to 80 percent in real terms. There has been no change in long-term fundamentals to warrant the level of house prices today. What's more, the sooner the bubble is burst the better: delaying the economic pain will only make it worse. It further argues the Federal Reserve should ensure housing bubbles do not get out of hand. In most parts of the country, housing prices have fallen from their peaks—how far they fall remains to be seen.