From the Roaring 1920s to the Roaring 2020s, Cycles of Boom and Bust

‘Never before have such fortunes been made overnight by so many people,’ said US journalist and statesman Edwin LeFevre in his narrative of the ‘Roaring 1920s.’

It was the ‘get-rich-quick’ era.

Many were still suffering from the previous depression in 1920. But regardless, the notion was that anyone could become a millionaire overnight from speculation on Wall Street.

‘Only the hardiest spoilsports rose to protest that the wild and unchecked speculative fever might be bad for the country…

‘The money lay in stacks in Wall Street, waiting to be picked up. You had to be an awful deadhead not to go get some.’

Historian Paul Sann,
The Lawless Decade

The Roaring Twenties led us to the peak of the post-war real estate cycle in 1929.

‘In January of 1929… there was no one to look over the edge of the cliff and note how far it was down to the bottom of the canyon.’

Stewart Holbrook,
The Age of the Moguls

The ‘bottom of the canyon’ was the worst economic downturn in the history of the industrialised world.

It lasted from 1929–39.

By 1933, 15 million Americans were unemployed and nearly half the country’s banks had failed.

The mainstream labelled the Roaring Twenties as merely a stock market bubble. (Similar to the 1973 land price bubble that was written out of history in favour of the story of the OPEC crisis.)

Few understand, however, that the Roaring Twenties had much more in common with the 1880s *worldwide* land boom that caused utter devastation into the 1890s depression.

Land is where the money on Wall Street was ultimately settling.

In the US, it was termed ‘The Florida Land Boom’ — however, it extended across much of the nation.

Between 1921 and 1929, lending on real estate in the US increased by 179%, and urban prices more than doubled.

By 1930, land values in Manhattan — including the total value of building plans — made up around 10% of the total value for 310 cities in the US (Manhattan included) during the same period.

This is a staggering figure considering Manhattan at the time only contained 1.5% of the US population.

The wealth that flowed to landowners was immense.

‘Thousands of new banks set themselves up in outlying areas…(they) were either operated by real estate promoters or exhibited excess enthusiasm to finance a local real estate boom’

Elmus Wicker,
The Banking Panics of the Great Depression

There was an explosion in the value of construction that would not be equalled until the boom-and-bust era of the late 1980s.

Marking the peak of the 1920s land bubble was the completion of the tallest building in the world.

The Empire State Building.

It took just 13 months to complete.

It used 58 tonnes of steel, 60 miles of water pipe, 17 million feet of telephone cable, and appliances to burn enough electricity to power the New York city of Albany.

It stood a quarter of a mile high.

‘The tallest building in the world created by man!’proudly declared former governor of New York City, Alfred Smith.

The Empire State Building had 2.1 million square feet of rentable space. However, it opened on 1 May 1931, 75% empty.

Office space in New York increased by 51% during the Roaring Twenties.

The higher the office, the higher the rent.

Thus, everything above the 41^st floor of the Empire State Building sat vacant.

It became the butt of jokes.

Dubbed ‘The Empty State Building’.
It didn’t turn over a profit until the 1950s.

Raskob (its builder) — who, in 1929, had penned the famous article ‘Everybody Ought to be Rich’ by investing in ‘America’s booming corporate economy’ — fell deep in the red.

At this point, I don’t need to tell readers how many similarities there are in this real estate cycle (the Roaring 2020s) to what investors experienced in the Roaring 1920s.

The monstrous land boom over COVID — and a technological revolution that has changed the way we work, live and play.

Things that also fuelled the Roaring Twenties:

• Televisions were invented.
• Homes were connected to the electrical grid and indoor plumbing.
• The first cross-Atlantic flight was successfully navigated.
• Cars and electrical manufacturing took hold.
• Jukeboxes were invented.

The list goes on. The transformation led to a sharp rise in productivity.

• It forever changed the size and living arrangements of households and workplaces.
• Women achieved a new level of independence. Awareness of ‘women’s issues’ started to change society in ways that benefited women.

And now we’re on the verge of entering into the final two years of the cycle between 2024–2026 — and the cyclical pattern continues.

This is what we call the ‘winner’s curse’ phase of the cycle.

It’s a period of feverish land speculation.

During this period, the rise in demand could not offset an increase in supply for popular areas to live and work.

Speculators outbid each other at precisely the wrong time in the cycle.

Interest rates continue to increase throughout the period, putting a strain on small businesses and productive activity.

As in the 1920s, the 2020’s world’s tallest buildings will be gearing up for completion.

Among them are:

Middle East — Dubai, United Arab Emirates
Ciel Tower
Height: 365 metres
Expected completion: 2025

North America — New York, United States
270 Park Avenue
Height: 423 metres
Expected completion: 2025

Asia — Nanjing, China
Greenland Jinmao International Financial Center
Height: 499 metres
Expected completion: 2025

While economic indicators will be generally bullish, we’ll see the US yield curve steeply invert again prior to the downturn.

Times will seem good, and punters may ignore the warnings.

But it will happen at a significant point in the cycle that those in the know cannot ignore.

The stock market will be surging into new all-time highs. Primarily led by the stocks most exposed to the property cycle — construction, building, and banking stocks.

But the seeds of destruction will have already been sown.

The winners of the last two years will inevitably be cursed as the market enters its inevitable downturn.

This cycle will present exciting investment opportunities in stocks and real estate within Australia as we navigate through the most bullish two years of the cycle — while forewarning the 2028 crash….

Best wishes,

Catherine Cashmore,
Editor, Land Cycle Investor