THE AMSTERDAM RENT INDEX AND HOUSING MARKET

The paper investigates the long run historic development of the Amsterdam rental housing market (1550-1850). Using rent data on a large cross-section of residential properties in Amsterdam we are able to develop an annual constant-quality rent index for the entire time period. Whereas nominal rents nearly tripled over the considered sample period, average Amsterdam house rents, in real terms, had approximately the same level in 1850 as they exhibited in 1550. Otherwise stated, nominal rents and goods prices rose at the same pace. Over these 301 years, the real index moves between a minimum level of 45.6 and a maximum of 162.4. As concerns the relation between the housing market and the real economy, we find empirical evidence that fluctuations in rents and fluctuations in proxies of business cycle activity comove, both in nominal and in real terms. The Great Recession of 2008/09 has illustrated the importance of housing markets for the macroeconomy. This is not surprising, as housing is among the largest stores of a value our societies have: the current value of the residential real estate in the U.S. and Europe exceeds total stock market capitalization (Case, 2000). Recent experience shows that housing market slumps can cause significant drops in financial portfolio values that can in turn erode overall domestic consumption and investment and can do even more harm by contaminating the banking sector via the mortgage markets. Many studies on housing rents and prices are available for the post-1945 era. However, the literature on the behavior of housing markets against the background of long-term economic developments is surprisingly scant. This lack of historical perspective on determinants of housing prices and rents is all the more problematic given the importance of housing costs for households and of house prices for the economy.