Real Estate Prices Around the World, Part 1
Bryan Taylor, Economist, Global Financial Data
Interest in the performance of real estate as an asset has been growing over time. The value of real estate in the United States is estimated at around $45 trillion. This is slightly greater than the value of equities in the United States, which is around $40 trillion, but less than the amount of outstanding bonds in the United States, which is around $55 trillion, about half of which is United States government debt.
Equities provide dividends and bonds provide interest, while housing provides people with a place to live. Nevertheless, it is difficult to capitalize the value a home provides to its occupants. Interest in real estate accelerated with the Global Financial Crisis in 2007 when the crash of real estate markets impacted other financial markets and the economy as a whole. Analysts realized that many people have a larger portion of their assets in real estate than in stocks and bonds, and given the size of the real estate market, analysts recognized its importance in studying the returns to stocks, bonds, bills, and real estate.
Returns to real estate cannot be compared directly to returns for stocks, bonds, and bills because the returns are indirect in the form of housing. Moreover, real estate requires investment to maintain the property each year, and unlike stocks and bonds, every property is unique. Unlike stocks and bonds, real estate is not fungible.
Global Financial Data has collected data on real estate from all the major countries in the world, and this article provides information that allows a comparison to be made concerning returns to real estate in the major countries of the world. What really surprised us by this analysis was how DIFFERENT the returns were from one country to the next. If you look at bond yields or the behavior of stock markets in different countries, there is some correlation between the returns. Bond yields and stock returns usually move in tandem between different countries, but there is little evidence for that if you look at real estate. Each country is truly its own market, and the behavior of real estate in one country has little influence on the behavior in another country. If you look at the United States, the behavior of real estate in California is different from the behavior of real estate in Iowa. Moreover, there is little correlation between returns on real estate and returns to stocks and bonds. Real estate clearly diversifies investors’ portfolios.
We have data for all the major countries of the world going back to 1970. This provides 50 years of evidence to trace the behavior of real estate prices over time. Some countries have even more history with data for Japan going back to 1945, for the United States back to 1890, for Norway back to 1819 and for England back to 1290. GFD has put together an aggregate index of global real estate prices to determine how prices have behaved around the world. The index is weighted by GDP and includes all the countries discussed in this paper. The World Index shows that there were real estate peaks in 1980, 1990 and 2007. During the past decade, real estate prices have been stable.
If you look at nominal real estate prices over time, they have increased, but this is primarily because the period since 1970 has been one of price inflation. Since 1970, consumer prices have risen by about 4% per annum. This means that prices double every 18 years, so consumer prices have increased about eight-fold during the past 54 years. Consequently, to get a feel for the behavior of real estate prices, we need to adjust for inflation. All the graphs that are provided below are inflation adjusted. During periods when real estate prices rose less than inflation, the graphs will show a decline to reflect the fact that real estate prices did not keep up with inflation. The worst performance comes from Germany which saw inflation beat real estate prices from 1970 to 2010. Most countries, however, have shown rising real estate prices that have beat inflation. Real estate is a good investment, and although it cannot be directly compared to stocks and bonds, it is an important part of any investor’s portfolio.
Real estate prices appear to have peaked in 2022. Most of the countries discussed below have seen declining real estate prices during the past year. How long this will continue, we do not know. Below we provide brief summaries of the behavior of real estate in twenty different countries.
Australia
Australian real estate prices have generally risen over the past fifty years, especially since 2000. The performance of Australian real estate over the past 50 years, adjusted for inflation, is provided in Figure 1. As can be seen, housing prices rose modestly during the twentieth century, with two increases in the early 1970s and around 1988 with flat prices in between those dates. Since 2000, real estate prices have steadily increased, with real estate doubling in price after adjusting for inflation during the past 25 years. The declines that have existed have been modest and there has been no break in the upward trend that began in 2000. As in the stock market and bond market, Australia has enjoyed steady price appreciation during the past 50 years.
Figure 1. Australia Real Estate Prices after Inflation, 1970 to 2023
Austria
We only have 40 years of data on real estate prices in Austria, but this is enough to establish long-term trends in real estate prices. Figure 2 shows three distinct trends in prices after adjusting for inflation: a doubling of prices between 1987 and 1992, declining prices between 1992 and 2004, and a second doubling of prices between 2004 and the present. Housing has generally outperformed stocks and bonds since 2004 and there is no reason to believe that housing prices in Austria will not continue to increase.
Figure 2. Austria Real Estate Prices after Inflation, 1987 to 2023
Belgium
Real estate prices in Belgium have not appreciated as significantly as in other countries. Figure 3 shows the behavior of real estate in Belgium over the past 50 years. After a sharp decline in the early 1980s, prices recovered in the late 1980s, but they have shown steady increases since 1990. Although prices have appreciated since 2000, the amount of increase has been small, at only 1% per annum over inflation since 2000. Just as is true of equities and bonds, compared to other countries, real estate has underperformed in Belgium as well.
Figure 3. Belgium Real Estate Prices after Inflation, 1970 to 2023
Canada
Real Estate prices have been unable to beat inflation in Canada during the past 50 years. As Figure 4 shows, there were dramatic swings in real estate prices during the past 50 years. Real estate prices increased in the early 1970s, after 1985 and between 2001 and 2007, but there were also dramatic drops in real estate prices in the early 1980s and early 1990s. At a nominal level, real estate prices didn’t drop, they just stayed the same during the early 1980s and 1990s, but inflation reduced the value of homes during those periods of time. One would think that with the dramatic increases in the price of real estate in Vancouver and other cities, real estate would have been a stronger performer, but the evidence is to the contrary. Equities and bonds have outperformed real estate in Canada during the past 50 years.
Figure 4. Canada Real Estate Prices after Inflation, 1970 to 2023
Denmark
Real estate prices in Denmark have been appreciating since the early 1990s. This is illustrated in Figure 5. There was little change in the real estate prices between 1970 and 1993 after inflation. Real estate prices declined in the early 1980s and from the mid-1980s to the mid-1990s. Since then, prices have generally moved upward with large increases during the 2005-2007 bubble, and since 2012. Real estate prices more than doubled between 1993 and 2007, declined, and then recovered during the past ten years. Since 1993, real estate has generally outperformed equities in Denmark. There is no reason to believe that real estate in Denmark will not continue to appreciate.
Figure 5. Denmark Real Estate Prices after Inflation, 1970 to 2023
Finland
Real estate has gone through wild price swings in Finland during the past 50 years. As Figure 6 shows, after an increase during the early 1970s, prices declined during the rest of the decade. There was a dramatic doubling in prices during the 1980s, followed by a crash back down to the price level of 1980 during the early 1990s. Prices steadily rose between 1995 and 2010, doubling during those fifteen years, but have gradually declined since then. Although real estate prices after inflation have generally increased during the past 50 years, they have not followed any trends. Prices have increased and decreased dramatically and there is no way to predict where prices will go in the future, but after a 10-year decline, a return to higher prices should be expected.
Figure 6. Finland Real Estate Prices after Inflation, 1970 to 2023 Real Estate
France
Real estate prices in France showed one dramatic increase during the past 50 years with basically flat periods outside of that one increase. As Figure 7 shows, prices gradually increased during the 1970s, fell back in the early 1980s, increased in the late 1980s, then declined until around 1997. Between 1997 and 2007, real estate prices doubled after adjusting for inflation. Since then, real estate prices have held steady and have shown no trend up or down. It is uncertain how long real estate prices will stay at this level before beginning a new upward trend.
Figure 7. France Real Estate Prices after Inflation, 1970 to 2023
Germany
Real estate has not done well in Germany during the past 50 years as Figure 8 shows. Germany is probably the worst performer in the world of the countries that we cover. Although nominal prices have held steady, inflation has steadily eaten away at the price of housing. Between 1970 and 2010, housing lost about 70% of its value relative to inflation. Although prices have recovered slightly during the past ten years, they have in no way made up for the steady decline between 1970 and 2010. It seems unlikely that real estate prices will recover their 1970 highs for several decades because real estate prices move slowly in Germany.
Figure 8. Germany Real Estate Prices after Inflation, 1970 to 2023
Ireland
Real estate prices in Ireland have shown dramatic increases over time as Figure 9 shows. The increase in prices in the 1970s represented an almost tripling in the price of real estate. Prices remained steady for the next 15 years, appreciating at the rate of inflation, then began their dramatic rise as banks fed into the real estate bubble, causing prices to more than triple once again. Between 1970 and 2007, real estate prices increased nine-fold after inflation! This was one of the most dramatic increases in real estate prices in the world. By 2007, real estate was overvalued, and prices crashed, losing 60% of their value over the next five years. Since then real estate has bounced back, almost doubling in price once again. Real estate has shown dramatic changes during the past 50 years and where it will go from here is anyone’s guess.
Figure 9. Ireland Real Estate Prices after Inflation, 1970 to 2023
Italy
Real estate has done surprisingly well in Italy. Given the poor performance of both equities and bonds, the general increase in real estate prices after inflation between 1970 and 2007 is surprising. After inflation, real estate prices quintupled between 1970 and 2007 as can be seen in Figure 10. During the past fifteen years, however, inflation has increased faster than real estate prices, returning them to the level they were at in the 1990s. The poor performance of the Italian economy during since 2006 has contributed to the poor behavior of real estate during the past fifteen years. The economy will need to recover for real estate prices to start moving up again.
Figure 10. Italy Real Estate Prices after Inflation, 1971 to 2023
