1 Rents and Welfare in the Second Industrial Revolution
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Rents and Welfare in the Second Industrial Revolution: Evidence from New York City Rowena Gray1 Note: Preliminary Draft, Do not Cite. Abstract: This paper presents new archival evidence on housing rents in New York City for the period 1880-1910 from newspaper advertisements. The rental information was geocoded and linked to information on local amenities and disamenities using historical maps of Manhattan Island and the software program GIS. This allowed additional linkage with ward and district-level census and health study data. With this comprehensive dataset, a quality-adjusted index of rents is developed and the capitalized value of each feature estimated, adjusting for spatial correlation at the sub-city level. The resulting index shows an overall increase in quality-adjusted nominal rents in the city of 39%, with a ramp up in average rents during the 1880s, to a peak in the early 1890s and further increase and increased volatility in the 1900s. More data is being added to the current sample to build a clearer picture of the evolution of rents over this period, a key component of estimates of standard of living which are typically ignored or ill- measured. 1 Rowena Gray, Department of Economics, University of California, Merced, 5200 N. Lake Road, Merced, CA 95343. Email: [email protected]. 2 I acknowledge the support of an EHA Cole Grant which facilitated the collection of rental data, and a UC Merced Committee on Research Grant which facilitated geocoding of the data. Excellent research assistance provided by Frank Chou, Cecilia Garcia, Sewon Kim, Jason Lee, Charles Martin, Jacob Miller, Jose Ulloa and Richard Wright. I also thank participants at the 2013 EHS, EHES and Swedish Economic History Meetings and the 2015 WEAI Conference for useful discussions 2 I acknowledge the support of an EHA Cole Grant which facilitated the collection and suggestions. I acknowledge Carlos Villarreal who built the of rental data, and a UC Merced Committee on Research Grant which facilitated geocoding of the data. Excellent research assistance provided by Frank Chou, Cecilia Garcia, Sewon Kim, Jason Lee, Charles Martin, Jacob Miller, Jose Ulloa and Richard Wright. I also thank participants at the 2013 EHS, EHES and Swedish Economic History Meetings and the 2015 WEAI Conference for useful discussions and suggestions. I acknowledge Carlos Villarreal who built the historical GIS maps of Manhattan Island and geocoded the first round of observations. 1 Introduction This paper presents a new dataset of rental prices for New York City housing for the period 1880-1910. This address-level rental information is geocoded on a historical map of Manhattan Island and thus linked to a very detailed set of locational characteristics. The paper then uses hedonic regression techniques, a standard in the housing literature, to generate a quality-adjusted rental index for those years and to investigate the value of each apartment characteristic and locational amenity/disamenity in the rental market. The aim is to devise new estimates of the urban housing cost around the turn of the twentieth century and to inform measures of the urban standard of living more generally at that time. Haines (1989, p. 8) describes housing costs as “one of the more difficult components of cost of living to obtain”. He used the Aldrich Report of 1890 to construct measures of housing costs in U.S. cities and to then compile cost of living indices for that year. It was possible to include housing in only 5 out of 68 cities. For Drelichman and Gonzalez Aguda (2012, p. 38), housing costs are “the neglected child of price history”. Existing estimates of costs of living have focused on prices of consumption goods and have typically assumed a quite low fraction of income was spent on housing (5-10% in Allen (2001)) and indeed this seems too low for a study of large urban areas.2 Often housing estimates that are used to compile overall CPI measures are based on very few observations that are not quality-adjusted. This paper is part of a growing literature that seeks to improve our knowledge of housing costs and conditions across a wide range of countries and time periods, some of which is discussed below. Measuring this key component in the consumer price index more accurately also facilitates a much better understanding of the real value of any given nominal wage during our sample period. Changes in rental values should have had large welfare implications on the New York population since rental units have comprised the majority of the Manhattan housing market since the nineteenth century. Only 9.63% of household heads 2 Drelichman and Gonzalez Aguda (2012) found that it was only half the true value for pre-industrial Toledo. 2 reported real estate holdings in 18703, which decreased to 1.7% owner-occupied dwellings by 19404. Rents were a large part of household budgets—in 1901, estimates of the share spent on rent range from 16.7% to 22.3%.5 Literature Review A number of recent publications explore historical real estate markets. Nicholas and Scherbina (2013) construct a quality-adjusted index of real estate sales for Manhattan, before and during the Great Depression, based on transaction-level data collected from archival sources, and show that high-end Manhattan real estate prices followed the stock market closely but ultimately property proved a less lucrative investment over this period. Similarly, Raff et al (2013) present a new, quality-adjusted, house price index for historical Beijing over the long run, 1644-1840. These papers explored the sales market, which is historically less important in terms of the budget of the average person in large U.S. cities than the rental market. The literature on rental markets in history is more sparse. For England and Wales, Clark (2002) collected data on 11,188 rental contracts over the very long run (1640-1909) from the records of charity groups. He used the observations on which there were multiple transactions to compute a quality- adjusted rental index and used this to construct estimates of trends in housing quality, showing that quality increased little during the Industrial Revolution even while rents increased. His findings add to the conclusion of the literature on this period that living standards could not have increased substantially even as technological change proceeded rapidly. Margo (1996) constructed a quality-adjusted index of rents for New York City and its surroundings for the period 1830-1860, using newspaper advertisements for this period. His sample contained fewer than 1,000 observations and so 3 1% Sample of the Population Census by IPUMS. 4 1940 Housing Census. 5 Rees, Albert (1961) Real Wages in Manufacturing: 1890-1914 (Princeton University Press: Princeton), p. 114. 3 could not be used to construct neighborhood-level indices, but was comprehensive enough to estimate the capitalized value of various unit-level characteristics as well as the distance to City Hall. The coefficients on the year dummies were used to construct a rental price index, which showed that the urban cost of living increased more over this period than had been shown in previous work which used less comprehensive rental information. Rees (1961) had also used newspaper advertisements as a source of housing rental information—he chose the New York World because of its working class target audience, and this paper makes use of this publication as well, as outlined below. Eichholtz et al (2012) use annual data for Amsterdam for the years 1550-1850 to construct a constant-quality rental index using the repeated measures approach. They focus on periods where rents change to try to identify market rents, although they acknowledge that this approach may overstate the true market volatility. The paper further examines the correlation between rents and business cycle forces, finding a strong correlation for this period. Drelichman and Gonzalez Aguda (2012) constructed a new dataset of rents for Toledo, Spain, over the years 1489-1600 based on the records of the Cathedral Chapter of the city. They were able to measure costs separately by social status and analyze the evolution of rents compared to population and economic growth trends as well as the timing of plagues and subsistence crises. As we do in our paper, they have to proxy the size of units rented in their sample due to a lack of full data on that aspect of the transaction-- they use building footprints combined with census information to complete this task. A recent study by Kholodilin (2015) presents monthly data on asking rents in Berlin gathered from newspaper advertisements, from 1909 to 1917, and explores the determinants of trends in the time series during and after World War I and the consequent population and building fluctuations. It is, to our knowledge, the only other study that has geocoded rental information from historical newspapers and computed a hedonic rent index controlling for detailed locational as well as unit characteristics. 4 Historical Housing Market in New York City The beginning of the sample period, 1880, signaled the development of the market for apartments for middle class and wealthy people in New York City, where previously such families would only reside in houses.6 Another trend in the 1880s was the use of cooperative building owning arrangements. Furthermore, the city moved northwards as transportation improved and new areas of the city (like the Upper West Side) became increasingly acceptable and fashionable over the sample period. Over time, competition became tougher for tenants and luxury apartment buildings became more common. In general, housing was fairly unregulated during this period, with no zoning in New York City until 1916 and no rent control. Building standards were the main form of regulation.