Housing Bubble Week: Lessons From Amsterdam’s ‘Gentlemen’s Canal’ — Piet Eichholtz

We all know that real estate is the best long-term investment for capital gains, and property investors should just hold through the ups and downs of the market. Right?

But is that really true? To answer that question we need to take a long run view of real house prices.

Piet Eichholtz is the Fortis Professor of Finance and Real Estate and the Finance Department Chair at Maastricht University. In 1997, he created the Herengracht Index, which, beginning in 1628, is the longest running house prices index in the world.

Show notes

Selected links

  • Follow Piet: Website
  • ‘A Long Run House Price Index: The Herengracht Index, 1628-1973’, Piet’s original 1997 paper
  • ‘The Amsterdam rent index: The housing market and the economy, 1150-1850’, paper by Piet Eichholtz, et al
  • ‘House Prices and Fundamentals: 355 Years of Evidence’, paper by Brent Ambrose, Piet Eichholtz and Thies Lindenthal
  • The Embarrassment of Riches, by Simon Schama
  • Irrational Exuberance, by Robert Shiller

Topics discussed

  • Why does Piet refer to Amsterdam as “my beloved city”? [8:34]
  • How did Piet come to put the Herengracht Index together? [9:43]
  • What is the Herengracht canal like and why do they call it the ‘Gentlemen’s Canal’? [11:57]
  • Is the Herengracht Index the longest running house prices index in the world? [20:23]
  • What are the difficulties in compiling a long run house prices index? [22:10]
  • How many houses and how many transactions make up the Herengracht index? [25:18]
  • Why did Piet use the repeat-sales method to build the index? [26:38]
  • What is the difference between nominal and real prices? [28:01]
  • What does the Herengracht Index look like when plotted on a chart? [29:35]
  • Is housing the best long-term investment? [31:03]
  • How much of the undulations in the Herengracht Index can be explained by the vicissitudes of Amsterdam’s history? [33:19]
  • Can we draw general lessons from the Herengracht Index? [37:16]
  • Where does the Herengracht Index currently stand? [40:21]
  • Do house prices repeatedly overshoot and undershoot over time? [41:05]
  • Why as a matter of economic theory should we expect real house price rises to be modest over the long run? [42:16]
  • How can we measure the “intrinsic value” of a house? [45:54]
  • What constitutes a housing bubble? [49:28]
  • What happened to global house prices in the 2000s? [56:30]
  • Are “mathematicians” or “historians” better at making economic predictions? [1:00:06]
  • Why is it important to take a long run view of house prices? [1:02:13]

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