What a 1920’s Housing Boom in Florida Can Teach You About Real Estate

The 1920s were a pivotal decade for Florida.

Traditionally viewed as a sparsely populated farming state, Florida gradually discarded this image after the Florida East Coast Railway was constructed in 1885 and was later expanded to West Palm Beach (1894), Miami (1896), and Key West (1912). As Florida became increasingly integrated into the broader industrialized American economy, the Everglades were drained in order to create new dry land that would be attractive for settlement.

Because of its favorable climate, Florida gradually became an attractive place to move to. Plus, Americans in the 1920s began to enjoy economic benefits that were unheard of in prior decades. With new resources at their disposal, Americans had the ability to travel and invest in promising markets like Florida. Prohibition also made Florida a prominent alcohol smuggling hub, as illegal alcoholic products were being imported into Florida from the Bahamas and Cuba and filling up bank coffers.

Land in Florida looked like an attractive vehicle for investment, which grew even more tantalizing as credit became easier to obtain. Investors nationwide drooled at the prospect of cashing into a housing market that was on the come up. Like all speculative manias, the Florida land boom of the 1920s brought in all sorts of people who did not have the slightest clue about real estate.

From 1924 to 1926, it was a party. The rising property values mesmerized investors, but many of these same investors ignored the rapid construction of rickety homes and stores that proved to be unsustainable. Economic realities quickly began setting in. People realized that many of the housing projects they were investing in turned out to be total duds, and in turn, housing prices started plummeting.

To add insult to injury, a series of hurricanes from 1926 to 1928 devastated local housing markets and forced many developers into bankruptcy. The Wall Street Crash of 1929 and the appearance of the Mediterranean fruit fly — a development that hurt tourist and citrus industries — that same year dealt decisive blows to Florida’s economy, thereby making it less attractive for outside investors. It took a few decades for Florida to get fully back on its feet.

All told, Florida’s land boom of the 1920s was its first real estate bubble. Regardless of the economic hiccups that Florida faced during the 1920s housing boom, the state’s profile was forever changed. This new influx of people and capital helped transition it from an agricultural economy to a modernized state during this decade. In time, the Sunshine State became one of America’s premier economic hubs.

Currently, we’re seeing another mass migration of people into Florida. However, there are different factors spurring the current wave of migration to places like Florida, which generally range from lower taxes to lighter COVID-19 restrictions. Yet again, lots of people are getting into Florida real estate. And we should expect similar mistakes to be made due to the mass hysteria guiding these people’s actions.

At this point, I don’t recommend that people invest in many of Florida’s markets. These markets have become very cyclical in nature. The best example would be Miami. The land value is high in cyclical markets. These markets experience big shifts in price that reach highs and lows. In effect, they are a rollercoaster ride.

Personally, I don’t like that as a conservative investor. I prefer reliable cash flows. That’s why you should buy properties with cheaper land so that you’re basically operating as a commodities investor.

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