Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

Okay. It’s a significant part of total new construction. And I know in the community where I live—I thought this was real estate hype when we bought our house—we were told that we had bought the land and got the house for free. But that’s just about the case, because the houses in my area—a subdivision built in the 1960s—are being torn down, and houses with 3,000 square feet are being replaced by houses with 6,000 to 8,000 square feet on nice one-acre lots. So the land value is significant.

On this question about what is really happening to land values in urban areas, I don’t know whether the data are available to answer that. I suppose a detailed look at real estate records and tax records, if you had enough resources to do it, would enable you to look at properties where the houses are being torn down and replaced with new homes. And that would probably give you a pretty good measure of the underlying value of the land in those areas. In any event, when real rates of interest come down, one would expect to see increases in the value of the land relative to the structure. So one would expect, I think, to see more teardowns. I gather that, though it’s not a brand-new phenomenon, the scale of it is probably much increased in recent years from 10 or 20 years ago.

At any rate, I offer those observations because, if we are in a world that is going to have much lower real rates of interest for some time to come, one would expect to see the price-to-rent ratio go up. Maybe this line in the chart has another 40 percent to go to get to equilibrium! [Laughter]

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