A 1920s bubble where prices rise quickly, encouraging hordes of new speculators into the market, overwhelms the only prudential safeguard available at this time, good sense. When the bust comes, the speculators left with devalued assets are ruined and even take down banks along with them. This could describe the nationwide stock market boom and bust in 1920s America or a smaller scale, but no less extraordinary, Florida land bubble that also inflated and popped in that decade.
In the 19th century, Florida would not have seemed the most likely place for a land boom. The swamps and mangrove forests that define the area rendered Florida relatively inaccessible and the land there relatively undesirable. Even the American West seemed to develop more quickly in the 19th century. Eventually though, this would change. Improvements in roads and railways and the drainage of the Everglades and similar marshes paved the way for real estate development on a large scale.
It may be worth dwelling on just how different this area was before the start of the new century. Perhaps surprising to Americans today, Florida was largely uninhabited in the 19th century. Even as late as 1890, the state’s population was considerably smaller than that of Maine and only a little more than a fifth that of neighboring Georgia, though it was beginning to grow more quickly.
Equally remarkably, it was Key West, a town clinging onto a relatively small island at the end of Florida Keys, that was the state’s largest settlement. Indeed, its largest city was somehow its most remote. Tampa, the fourth largest city in the state in 1890, had just over 5,500 people and Orlando, the ninth largest city, had under 3,000. For its part, Miami would only be incorporated in 1896.
As the improvements to the land and infrastructure got underway, many were drawn to Florida by the low cost of land. Real estate development was closely linked to the roads and railways. Sometimes, the same entrepreneurs and firms were involved in both. Henry Flagler, who built the Florida East Coast Railway along the Atlantic coast of the state, also developed hotel properties. Unsurprisingly perhaps, much of the development focused on leisure travelers from the rest of the country. Florida’s weather and lax enforcement of prohibition laws and tolerance towards gambling attracted tourists. Prominent businessmen like John D. Rockefeller and Thomas Edison had already relocated there full time and this may have helped attract other wealthy Americans to Florida.
The Florida real estate bubble began in the 1910s. Miami and its environs was its epicenter. For some context, the population of Miami grew by over 400% in the decade and another 55% between 1920 and 1923. At the start, this was matched by development activity but speculative development began to overtake the already stunning rate of population growth.
The value of Miami building permits rose from $2 million in 1916 to $7 million in 1923. From there, the per annum rate of growth accelerated still more, reaching $17 million in 1924 and $60 million in 1925. In fact, there was a single day in June 1925 where $2 million in permits were issued; an amount that would have made up the annual total less than a decade earlier. The surging development forced land prices higher and between 1918 and 1923, Miami property values rose 1,000%. The bubble was not isolated to Miami though. In Orlando, building permit volume rose from a value of $3 million in 1924 to nearly $8.6 million the following year and some expected the total to exceed $10 million in 1926. Unfortunately, that would be the year the bubble popped.
While it was underway, the frenzy in Florida got the attention of the national press and there was also a fantastic increase in advertising for Florida real estate. Connecting the state to the rest of the country, road development accelerated as the age of the automobile arrived. As it happens, Miami had the highest rate of car ownership in America in the mid-1920s. Florida was not the isolated backwater it was just a generation earlier.
People rushed to buy properties from developers and the speculation would not be inconvenienced by remoteness; investors purchased properties sight unseen by mail. Those who decided to visit the serene new towns and cities they would invest in were encountered with scenes more thunderous than tranquil.
New arrivals would be welcomed to Miami by the hoards of real estate agents that would amass at the city’s train station each day. Realtors worked through the night as transactions couldn’t wait until the next business day. Flagler Street in central Miami was said to be home to no businesses except real estate firms. These were cities that ran on real estate transactions and development. In Orange County, anchored by Orlando, some 5,000 people were engaged in the realty business. Public spending could be funded by property taxes and building permit fees alone, allowing Florida to amend its constitution in 1924 to prohibit state taxes on incomes and inheritances.
Prices rose quickly. Properties could double or triple in value within weeks. Lots in central Miami that could be bought for $1,000 in the early 1900s, soon after the city was founded, would trade hands at prices of up to $1 million by 1925. Lots just a mere two miles from the city center, which might have been bought for sums of around $250 before the boom, appreciated considerably as well.
As in almost all real estate bubbles, credit featured prominently. Banks around the country invested in Florida and together with the local banks, they deployed depositors’ money into real estate, developing close relationships with developers, like George Merrick, the founder of Coral Gables, Florida. Banks provided easy access to credit, so people could buy speculative real estate with small down payments. In fact, much of the buying was done via ‘binders’ or options to purchase properties rather than outright purchase of the properties themselves. These options enabled someone to leverage his money to achieve larger profits from flipping real estate.
The life of a Florida real estate speculator was not necessarily luxurious even if it was profitable. These speculators from out of town, lacking permanent residence in Florida, would live out of crowded hostels. Miami was a tent city as new construction couldn’t keep up with the number of arrivals. A resident could rent a covered porch to a traveler for $25 a night, a considerable sum for the 1920s.
Yet, the profits to be made were far more incredible. Mitchell Wolfson, a prominent Miami businessman, remembered buying and selling a small apartment on the same day for a profit of $10,000. The only capital the trade tied up was a down payment of $2,000, for a single day. The bubble’s peak arrived in late 1925.
No account of a financial bubble is complete without identifying a couple notable characters behind the speculative mania. One example from the 1920s Florida land bubble is George Merrick, the developer behind Coral Gables. Merrick combined business and marketing skill with attractive city planning.
He essentially ran the city as his own planned community and hired William Jennings Bryan, the three-time Democratic Party nominee for the presidency of the United States, as a promoter for the project. Indeed, one of the most famed orators in American history was now touting Florida property and for a considerable wage too. Merrick was paying Bryan $100,000, half in cash and half in land. This was at a time when the average taxpayer, already a wealthier subgroup of Americans, was making just $5,249 a year on average. Such amounts were a trifle though. Within four years of opening to purchasers, Coral Gables was seeing more than $4 million in real estate transactions each month. In 1925, property sales reached $100 million for the year.
About ten miles away, in Miami Beach, there was Carl Fisher. Like Merrick, he built his developments in a Mediterranean style popular at this time in Florida. These became iconic, as usual, through advertising. In the winter of 1920, he paid for a billboard placement in New York’s Times Square proclaiming “It’s June in Miami!”. In 1925 alone, real estate sales in Miami Beach amounted to $23.5 million.
Fisher was among the least enthusiastic of the boom though. He was a rare example of a developer with a longer-term view of his market and worried that a bust would do more harm to his interests in Miami than the preceding boom. Compared to other developers, he demanded larger down payments from buyers of his properties. He also came the closest of the notable developers to compromising on his ambitions, recognizing the boom might end. No one person could prematurely deflate the bubble single-handedly though.
The exuberant conditions began to weaken in the fall of 1925. There are many possible reasons why conditions changed in late 1925 and 1926. For one, federal tax authorities began to investigate the profits of speculators who received only a portion of their profits in cash and the rest on credit upon selling a property. Of course, all of the profit had to be regarded as income for tax purposes immediately, even if little of it was received in cash.
However, to this must be added several other factors. For example, the volume of building materials bound for Florida overwhelmed railways and ports, slowing construction schedules. High costs also discouraged visitors; recall the sparse availability of accommodation in Miami. State governments elsewhere cracked down on sales of Florida real estate in their states. Investigations of fraudulent dealings during the bubble were launched and speculation in the stock market also cooled in 1926. Perhaps this spilled over into the Florida real estate market.
Despite all these possible factors, perhaps the event most often blamed for ending the mania was a force of nature, the Great Miami Hurricane of 1926. The storm killed a hundred in Miami alone and nearly four hundred people overall. Thousands of homes were destroyed, in addition to many other unfinished projects. The storm may have done its part to cause a mass exodus of speculators. Real estate firms closed and the volume of new construction came crashing down.
A result of the bust was that banks were now stuck with loans whose mortgaged collateral had fallen so far in value that the loans were now underwater. Many banks failed and in the case of three Sarasota-based banks that failed in 1928, depositors received no more than fifty cents on the dollar in each instance. For the city governments of Florida, the crash destroyed their budgets. Cities that had seen a surge in development had to cut spending as tax receipts and fees for building permits fell. Making matters worse, another deadly hurricane made landfall in 1928.
As conditions turned, George Merrick, the visionary behind Coral Gables, was selling his developments to the city government he essentially ran at inflated prices. A $4.5 million municipal bond was issued in 1927 to purchase assets of his Coral Gables Corporation, one of many such issuances. In a now-depressed market, this was not a fair deal. Coral Gables’ fire station, ambulance house, and city hall, buildings which had cost Merrick only $34,234 to build, were sold to the city’s taxpayers in 1927 for $150,000. At least these buildings still had a purpose though. After the bust, Florida was full of abandoned resorts and other developments.
That a natural disaster can end a speculative frenzy seems plausible and it is certainly comforting. Blaming a hurricane conveniently excuses human actors. After all, who could predict a hurricane and what could possibly have stopped it. If the other potential triggers of the bust were the real cause, like the aggressive marketing, fraud, and leverage, then the saga seems all the more bleak. Regardless of what brought about the mania’s end, its onset was no doubt the result of human actors, no one individual perhaps, but there was a collective abandonment of good sense because, at least for a moment, the results seemed very favorable. As long as you got out of Miami on the eve of the storm, you may have turned out fine, if not very wealthy.
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Read about other real estate bubbles in 1790s America, in 1880s Australia, and 1980s Japan. Access to credit was also a necessary condition for leisure-oriented property development in Las Vegas. Consider subscribing to this blog’s newsletter here.
1. Andrews, Mark. “County’s 1920s Land Boom Faded Just as Quickly as It Had Started.” Orlando Sentinel, 12 Dec. 1993.
2. Bubil, Harold. Secret Bank Records Shine Light on 1920s Boom and Bust. Sarasota Herald-Tribune, 27 Jan. 2008.
3. George, Paul S. “Brokers, Binders, and Builders: Greater Miami’s Boom of the Mid-1920s.” Florida Historical Quarterly, vol. 65, no. 1, 1986, pp. 27–51.
4. Knowlton, Christopher. Bubble in the Sun. Simon & Schuster, 2020.
5. Rank, Scott, and Christopher Knowlton. “How the Florida of the Roaring Twenties Created Modern America and Triggered the Great Depression.” History Unplugged Podcast, 26 Mar. 2020.