Four Centuries of Location Value: Implications for Real Estate Capital Gain

Abstract

In this paper, we construct a 347-year index of location value for the period 1628-1974 for a major section of central Amsterdam (the Herengracht). We then use this index to investigate the implications of the monocentric city model for potential long term capital gain in real estate
investments in central places. Our results show that this capital gain is very close to zero in real
terms, as the monocentric city model would predict. Nearly all of the real growth in location value that did occur can be attributed to two historical periods, one in the seventeenth century and the other in the mid 20th century. Both of these were rather exceptional periods in history: the former when the Herengracht was at the periphery of the expanding residential area of the city; and the latter when the Herengracht was at the periphery of the expanding commercial core of the city.