Housing has been one of the most essential services consumed by human beings and real estate has been a key store of wealth. Houses are a large proportion of household wealth, serve as a key collateral for bank lending and play a central role for long-run trends in wealth-to-income ratios and the size of the financial sector. Fluctuations in housing prices, their impact on balance sheets of consumers and banks, as well as the deleveraging process caused by house price busts have been a major focus of macroeconomic research in recent years. How have house prices evolved over the long run and what can we learn from history?

A wide body of literature has looked into house price evolution for different countries and time periods. Based on extensive historical research, Knoll, Schularick and Steger (2017) present house price indices for 14 advanced economies since 1870. The authors show that house prices in most industrial economies were largely constant in real (CPI-deflated terms). By the 1960s they were on average not much higher than they were on the eve of World War 1. They have been on a long and pronounced ascent since then, giving rise to a hockey-stick pattern of house prices in the long run. The authors also study the driving forces of this hockey-stick pattern of house prices. Land prices are the key to understanding the trajectory of house prices, explaining 80% of the global house price boom that has taken place since World War II.