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I got an email this morning pointing me over to a very unique think piece by Captain Capitalism. Instead of taking the standard view of real estate that it is skyrocketing for no reason and the market is one of leaps and spurts, the good Captain looks at it through the prism of our Gross Domestic Product (GDP) per square kilometer. To put it in laymans terms, the growth in GDP per sq. km has risen so dramatically via technology and productivity that housing prices have risen in lockstep.

Top cities are more productive per square kilometer so they are worth more. This would explain Detroit housing prices dropping as productivity in the city is plummeting with the car industries misfortunes. While in New York the prices are still rising as the financial sector is posting huge gains.

Real GDP per sq. km. in the US has gone from just under $200,000 almost $1.3 million today. As technologies have advanced, managerial efficiencies invented and employed, we here in the US are able to squeeze out almost 7 times the amount of wealth from our land per square kilometer than we were just 50 years ago (quite identical to farming yields on a per acre basis).

It is this increase in wealth that we can extract from each square mile of our land that has truly increased our property values. However, combine the two, high levels of the production of wealth with high populations, and you get property that is most highly valued; cities.

It is no coincidence that New York, London, Hong Kong, Singapore, Tokyo etc. etc. have the highest property values in the world because not only do they have some of the largest populations, but they are also centers of commerce where disproportionate amounts of wealth are created. via Captain Capitalism

If you have a free moment today, take a look at the full post. While I can not confirm the analysis, it is a refreshing look at how the real estate industry works with the general economy.

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1. When Property Values Go Down Chicago Just Bumps Up Transfer Taxes
2. 1031 Land Exchanges Raising Values of Farm Land
3. Huge Run Up Of Commercial Real Estate Values Hurting 1031 Exchanges
4. 20 City Case Shiller May 2008 Analysis
5. Case Shiller Analysis - When Was The Last Time Your City Was This Low