The effects of epidemics on the housing market: a historical point of view

NRC

Research shows that previous epidemics did not have a lasting effect on the housing market. Matthijs Korevaar, Assistant Professor in Finance, Real Estate and Economic History at Erasmus School of Economics, and Marc Francke, Professor at the University of Amsterdam, examined data on demographic developments during nine plague outbreaks and two cholera epidemics in the sixteenth, seventeenth and nineteenth century in Amsterdam and Paris. The results showed that epidemics in the past only led to short-lived drops in house and rental prices.

Expectations and surprise 

In an article published by NRC, the researchers point out that they also did not expect any long-term price effects. 'Amsterdam had to deal with about ten plague outbreaks in the period we studied. Without a quick recovery, we would never have been able to speak of the Golden Age', says Korevaar. Surprising, however, were the differences in effects between house and rental prices. ‘You would expect equal fluctuations for both. But rents went down by only 5 to 6%, a lot less than house prices,’ says Korevaar. According to Korevaar, this is because of the low home ownership in the cities. 'Home ownership was low in both cities, as it still is today. Somewhere between 15 and 30%. Corporations - who are more inclined to look after the interests of tenants - did not yet exist. There was only private renting.'

Strong differences 

Six months after an outbreak, prices on the real estate market were some 13% lower than before the epidemic. However, this rebounded within a few years. According to the researchers, this is probably due to the short duration of the epidemic and the arrival of large groups of migrants in the following years. In Paris, they found strong differences in price reductions per neighbourhood. ‘In poor neighbourhoods, sometimes as much as 6% of the population died, while in more affluent parts of the city near the Champs-Élysées it was only 1%. Although the entire city was hit by the cholera epidemic, the price drops were much steeper in the districts where the outbreak claimed many victims. However, these differences also disappeared within a few years', says Korevaar.

An uncomparable situation 

However, the researchers' findings cannot be compared with the current housing market developments in the big cities. In fact, prices have risen sharply by approximately 12%’, says Korevaar. ‘Rent prices have fallen somewhat, partly because expats have stayed away. Many factors are also different now. Houses are no longer sold by auction and many more buyers live in the houses themselves. Mortgage interest rates are also very low, and the government is investing billions in support to limit the economic effects of the pandemic. Demographic aspects also play a role: there are relatively many elderly and many of them have quite a bit of savings.’

More information

The full article from NRC, 15 Feburary 2021, can be found here (in Dutch).