Reaching for Yield : How Investors Amplify Housing Booms and Busts

Do investors reach for yield when interest rates are low, and how does this behavior influence house prices? This paper uses the unique setting of 17th-18th century Amsterdam to answer this question, using newly-collected archival data on investment portfolios and the universe of property transactions in this period. Exploiting exogenous shocks in the supply of safe government bonds, I show that wealthy investors shifted their wealth towards higher-yielding assets such as real estate when bond yields were decreasing. This behavior exacerbated booms and busts in house prices and resulted in a persistent increase in housing wealth inequality. Reach for yield behavior was not limited to real estate assets and contributed to the development of international financial markets