Real Estate Industry
REAL ESTATE INDUSTRY
REAL ESTATE INDUSTRY. Real estate is land, all of the natural parts of land such as trees and water, and all permanently attached improvements such as fences and buildings. People use real estate for a wide variety of purposes, including retailing, offices, manufacturing, housing, ranching, farming, recreation, worship, and entertainment. The success or failure of these uses is dependent on many interrelated factors: economic conditions, demographics, transportation, management expertise, government regulations and tax policy, climate, and topography. The objective of those engaged in the real estate industry is to create value by developing land or land with attached structures to sell or to lease or by marketing real estate parcels and interests. The real estate industry employs developers, architects, designers, landscapers, engineers, surveyors, abstractors, attorneys, appraisers, market researchers, financial analysts, construction workers, sale and leasing personnel, managers, office support workers, and building and grounds maintenance workers. By the end of 2001, 1,544,000 were employed in the real estate industry.
The development and marketing of real estate, common in Europe since the Middle Ages, came with European colonists to the United States. For instance, in the seventeenth century Dr. Thomas Gerard, an owner of land in Maryland granted to him by the second Lord Baltimore, profited by leasing and selling land to other settlers. The new federal city of Washington, created in 1791, was subdivided and the lots offered for sale, although this enterprise proved disappointing to its sponsors. The first hotel constructed in the United States, an early example of commercial real estate development, was the seventy-three-room City Hotel at 115 Broadway in New York City, which opened in 1794. It served as a model for similar hotels in Boston, Philadelphia, and Baltimore. In the 1830s, William Butler Ogden came to investigate land his brother-in-law had purchased near the Chicago River and stayed on to become a real estate developer and Chicago's first mayor. The rapid growth of cities in the nineteenth century provided many opportunities for the real estate industry.
Real estate development is sensitive to fluctuations in the economy and in turn contributes to those cycles. The combination of a capitalist economy and a growing population makes the expansion of land uses inevitable, but developers can misjudge the market and produce too many office buildings, hotels, apartment buildings, or houses in any particular area. As a result rents and sale prices fall. The economic prosperity of the 1920s brought a huge expansion of real estate, especially in housing, but by the mid-1930s, 16 million people were unemployed and the demand for real estate of all types declined precipitously. World War II brought technological innovation and a backlog of demand for new construction. The mortgage stability introduced by federal legislation following the Great Depression and World War II greatly aided the huge expansion of suburban housing and shopping centers that followed the war. William Levitt started building Levittown on Long Island in 1947, with 17,447 standardized houses produced at the rate of 36 per day for a population of 82,000, and by 1955 this type of sub-division represented 75 percent of new housing starts. The 1950s also brought the nationwide development of Holiday Inns by Kemmons Wilson. In the continuation of a trend that had begun with the Empire State building in the 1930s, skyscraper office, apartment, and hotel building construction continued after World War II in urban centers, driving up site values. As population growth shifted to the West and the South after the war, investment in the real estate industry moved with it.
The restrictive monetary policies of the latter years of the 1960s, the energy crisis and inflation of the mid-1970s, inflation in the early 1980s, the savings and loan crisis of the late 1980s, and inflation and overproduction in the early 1990s, all negatively affected the real estate industry. However, a period of general economic prosperity began in 1992 and the real estate industry flourished in the remainder of the 1990s.
Caplow, Theodore, Louis Hicks, and Ben J. Wattenberg. The First Measured Century: An Illustrated Guide to Trends in America, 1900–2000. Washington, D.C.: American Enterprise Press, 2001.
Gelernter, Mark. A History of American Architecture: Buildings in Their Cultural and Technological Context. Hanover, N.H.: University Press of New England, 1999.
Miles, M.E., et al. Real Estate Development. Washington, D.C.: Urban Land Institute, 1991.
Seldin, Maury, and Richard H. Swesnik. Real Estate Investment Strategy. 3d ed. New York: John Wiley and Sons, 1985.
White, John R., ed. The Office Building: From Concept to Investment Reality. Chicago: Appraisal Institute and the Counselors of Real Estate, 1993.
LAND COMPANIES. From the Virginia Company of 1603 and its grant of land in North America, through the Great Depression of the 1930s, land companies existed as intermediaries between governments seeking to dispose of their lands, and private individuals wishing to settle on the lands. In the original thirteen states, land companies advocated Indian removal and opening lands to white settlement. That often included fraud, as in New York State when the Holland and Ogden Land Companies illegally forced Indians out of the state and into the West or Canada. Some land companies engaged in fraud at the legislative level, as did the group of Yazoo companies involved in buying land from the state of Georgia for less than one cent an acre in the 1790s. The resulting confusion over title to western Georgia lands lasted more than a generation.
The main area of operation for land companies was the public domain of the United States, that is, lands that the United States acquired in spreading from the Atlantic to the Pacific. Alexander Hamilton and George Washington in the 1790s saw a need for land companies as brokers between the federal government, which wanted to sell large tracts of public land, and small farmers looking for new farmland. The first land company in the new Republic was the Scioto Company of Ohio, which bought 5 million acres of land for resale to settlers in the Northwest Territory. Each wave of public land fever brought forth new companies. After the War of 1812, the Boston and Illinois Land Company bought nearly a million acres of land in Illinois. In 1820, the United States stopped selling public land on credit to purchasers, so land companies stepped into the role of seller and creditor.
A new type of land company emerged after 1850, when Congress began granting millions of acres of public land to railroads. Land grant railways used part of their lands to secure loans for construction. Once completed, railroads encouraged settlement by selling some of their land. That way, settlers would grow crops, raise livestock, make journeys, and, in general, use the railway. Railroads sold as much as 100 million acres of land to settlers.
One way to think about land companies is to view them as classic commodity speculators: they tried to buy low and to sell high, and they sought to turn over the inventory as quickly as possible. In this view, land companies were a hindrance to settlement, because they bought up the best land before the average settler could get any, and then withheld that land for resale at higher prices. An alternate view is that land companies were efficient market makers. They provided expertise in locating good lands, and they provided credit that was otherwise non-existent in many frontier communities.
Gates, Paul W. History of Public Land Law Development. Washington, D.C.: Government Printing Office, 1968.
Hauptman, Laurence. Conspiracy of Interests: Iroquois Dispossesion and the Rise of New York State. Syracuse, N.Y.: Syracuse University Press, 1999.
See alsoLand Grants: Land Grants for Railways ; Yazoo Fraud .