IX. LAGGARDS: REAL ESTATE

Henry Flagler, the very rich former number two man in John D. Rockefeller’s Standard Oil, discovered Florida in 1877—indeed, many thought he had invented it. After sampling its legendary winter weather, he commenced a Florida development program of lavish beachfront hotels for plutocrats and, along with entrepreneurs who followed him to the state, built modern rail and seaboard transportation, docking, and storage facilities. Altogether, Flagler put between $40 and 50 million of his own money into Florida, or close to a $1 billion in today’s dollars.

Flagler died in 1913, but other wealthy entrepreneurs had followed him into Florida. One of them, Carl Fisher, creator of the Fisher auto body company, may have been the first to concentrate on residential housing. Development flagged during the war and froze during the 1920–1921 downturn. But building activity in Florida picked up sharply in 1922–1923, and by 1924 the whole region was in the grip of a frenzied real estate gold rush.⁴⁹

While the building boom took place along both the Atlantic and Gold coasts of the panhandle, the epicenter of the activity was Miami. Its population doubled to almost 7,000 between 1900 and 1910, and jumped to nearly 30,000 by 1920. Tourism was still the main industry, but real estate was growing apace to keep up with the population. Intensive investment in draining the Everglades opened up more interior land, for both agriculture and residential uses, and national land companies moved in to assemble parcels for residential subdivisions. More and more of Florida’s casual vacationers fell in love with the state and put down permanent roots. By 1923, Miami’s population had passed 47,000. The state legislature injected a cocaine hit into the frenzy by abolishing income and estate taxes. Land values went exponential, as local chambers of commerce howled gleefully from the sidelines.⁵⁰

The “binder boys” capture the hallucinatory tinge to the whole episode. The binder was simply a purchase option to buy a property once title had been transferred and the first substantial payment made. Binders were typically priced at a small portion of the expected purchase price, they were “binding” on the seller, and could themselves be resold. The binder boys were the kind of gritty, street-smart, moving-up-fast lads so admired by Charles Dickens. They mostly worked the streets and arriving rail centers, with binder books in hand, hawking raw real estate options. Once a purchaser bought a binder, for cash usually, he and the seller would proceed to the records office and register the binder. The purchaser of course had never seen the lot, and often had no idea of its location, but had a small piece of the biggest lottery in America.⁵¹

Canny locals often made modest fortunes in the binder game. One longtime resident said of the boom: “everything kind of went crazy.… I’d leave in the morning and tell my wife, ‘How much money do you want me to bring home?’… I’d come up town and it wasn’t so long for I’d have a deposit on a piece of property. Maybe a few hundred dollars. In forty-eight hours you’d sell it and make several thousand dollars.” Other proto-cities sprang up to take advantage of the boom. The most successful was Coral Gables, which had its own song, “Moon Shines in Coral Gables,” contracted from Irving Berlin’s songwriting team. William Jennings Bryan was one of their pitchmen.⁵²

By 1925, the signs of an Everglades-sized bubble were unmistakable. The City of Miami had $60 million in new construction underway in 1925, and Greater Miami had $103 million worth, against $11 million in their 1923–1924 fiscal year. Sixteen giant luxury hotels were completed in Miami in 1925, and fourteen more started construction. Lots that were sold for $1,000 in the early 1900s were going for prices of up to $1 million. Parcels of land near a fashionable area sold for $7,000 in June and rose to $35,000 within six weeks. Total sales booked in Coral Gables in 1925 surpassed $100 million.

The seamy side of the boomtown was on full display, with mushrooming tent cities for construction workers, speculators renting sleeping spaces on residents’ front porches, soaring crime rates, and impossible traffic. Miami had 105,000 automobiles, the highest per capita in the country. The boom cooled in 1926. A slow period in the stock market dampened the appetites of investors, and buyers from the late-stage boom began to default on their payments. The coup de grâce may have been a 125-mile per hour hurricane that nearly flattened Miami. By 1929, even Coral Gables was facing bankruptcy.⁵³

The Florida real estate craze and collapse was an extreme example of 1920s mini housing booms and subsequent busts throughout the country. The economist Alexander Field suggests that they may have played a significant role in prolonging the Depression—but not for the usual reasons studied by economists, like damage to bank balance sheets, but for clogging the microeconomics of housing. Throughout the country, developers rushed into projects, often with poor site selection, poorly planned utilities, and awkward street layouts.^*54

A 1947 study by the National Housing Administration commented on the legacy of the 1920s, noting that:

In their eagerness to find tracts of land in single large ownership, unhampered by fixed arrangements of streets and utilities, developers… will pass by hundreds of thousands of plots already equipped with paved streets, curbs, sidewalks, water and other utility mains into which millions of dollars have already been sunk—enough, indeed, to have bankrupted many townships and villages.

Many millions of lots still shown on assessors’ books are entirely unimproved and never represented more than some stakes set out in a field.… [Others] are sterilized because the ownerships are dispersed in the hands of nonresidents who cannot be located and who have long since ceased to pay taxes.

No sound estimates have been developed of the total amount of abandoned subdivisions, either in area or in cost.… [T]here may be from twenty to thirty million vacant subdivided lots of record in the whole country.⁵⁵

Another 1947 report from the American Municipal Association noted that “foreclosure and forfeiture action since 1930 has in most places reduced the problem of tax delinquent vacant land to minor proportions.” That report, Field notes, marked the end of a twenty-year period of “lengthy, costly, and drawn out legal processes necessitated by the prior boom and deflation.” The new Federal Housing Administration (FHA) played a leading role in working off the blockading detritus of ill-fated 1920s developments, both through education of municipal officials and the standards it insisted upon for approving FHA-insured financing.⁵⁶

The collapse in residential construction, however, was another nail in the coffin of the 1920s business boom. Unfortunately it coincided with an overshoot in the late-decade boom in urban skyscrapers. Construction was the hardest-hit industry of all in the Depression looming ahead.