Most of the value is at ground level and below.

Photographer: Ronda Churchill/Bloomberg

Housing Bust Wasn't About the House

Jonathan Miller writes about the housing economy and other aspects of real estate. He began a real estate blog, the Matrix, in 2005, and has written a column for He is co-founder of Miller Samuel, a residential real estate appraisal company, and the commercial valuation firm Miller Cicero.
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Unless you live in a cave, you're no doubt familiar with the outlines of the housing bust that marked the beginning of the financial crisis: Real-estate prices plunged, people lost their homes, banks went under and the economy tumbled into a recession. We are still grappling with the hangover.

 There's only one issue with this narrative: Housing prices didn't fall that much in the meltdown, or at least the value of physical structures didn't fall much. It was the price of land that imploded. See the chart below:

In advanced economies, rising land values have been behind as much as 80 percent of the real-estate price gains since 1950. U.S. housing prices increased about 650 percent during the past four decades and most of that gain was due to rising value of land.

One thing rising land prices help explain is the tear-down phenomenon -- when a small home is replaced with a larger home. A more valuable piece of land can justify a larger, more expensive home. That's also one reason why the average size of a U.S. home has increased almost 60 percent during the past four decades.

So next time someone says they can't believe how much housing prices have risen -- or fallen -- tell them to blame the land they're standing on.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Jonathan J Miller at

To contact the editor on this story:
James Greiff at