Real estate has always been big business in the United States. After the Revolutionary War, the federal government began a process where it transferred one billion acres of land to private owners through land sales and land grants. For example, in the 1830s the government sold 20 million acres for roughly $1.25 per acre. Although this sounds like a bargain to us today, at the time the vast majority of citizens couldn't afford the price. Consequently, a grassroots group called the Free Soil Movement formed and lobbied the government for an alternate method of distributing land.

The Homestead Act of 1862 was Congress' answer to the appeal. Those settlers who did not already own what was considered a "judicious" amount of land were given title to 160 acres per each adult in the family. There was no cash exchange. Instead, the understanding was that the settlers would live on and improve the land for a period of at least five years. This program was very successful and similar federal programs that distributed land followed until the later part of the 19th century. In total, the government distributed over 300 million acres of public property to private landowners and created the basis for the real estate market.

For the first time in the history of the young country, there was a system in place where one landowner could transfer property rights to another through sale, lease or trade. As you can imagine there was a tremendous amount of speculation. Some investors accumulated a tremendous amount of wealth, while others lost everything.

At the end of the 19th century, America was in transition from an agricultural society to a manufacturing economy. Citizens flocked to urban areas to work at the burgeoning factories. Midwestern industrial center Chicago, for example, reached a population of one million people quicker than any other city in history. Settled in the 1830s, Chicago grew from less than 1,000 inhabitants to become the fifth largest city in the world by 1900.

The values of urban properties skyrocketed. By 1920, 50 percent of the American population lived in cities. This density in urban America created opportunities for real estate development as housing, office buildings, industrial facilities, hotels and retail centers were constructed to meet the demands of city dwellers.

The skyrocketing property values and associated costs began pushing the people and businesses that could not afford them outside the city. Advances in transportation made moving outside the city easier and suburbs, communities just outside urban centers, began to spread. Developers made these planned communities attractive by building along the transportation routes so people could easily commute to work in cities.

Technological advances influenced the building boom of the 1920s. There were significant technological improvements, such as new machinery (i.e. the elevator) and electricity, which created additional demand for more space and changed the way real estate looked. Planned communities began taking shape in the suburbs. In urban centers, skyscrapers changed the way the cities looked. One hundred buildings higher than 25 stories were constructed in this decade. Most of these skyscrapers were built in New York City, with Chicago a distant second.

The Great Depression crippled most industries -- including real estate. Values dipped below debt levels, which caused a collapse. The federal government put the domestic financial markets through a major overhaul and was shrewd enough to include the real estate financing market as part of the New Deal programs.

The Federal Housing Administration (FHA) was created in 1930 to provide mortgage insurance, which lowered the risk on real estate loans and made lending more palatable for savings and loans and banks. The government also created the Federal Home Loan Bank System (FHLB) to supervise and regulate local banks. In 1938,the Federal National Mortgage Association (FNMA or Fannie Mae) was created to provide a secondary mortgage market as well as to lure investment capital in the mortgage market, and today continues to play a very important role in supplying capital to the mortgage market. As a result of the New Deal programs, the real estate finance market became more sophisticated and secure.

America and the real estate industry slowly climbed out of the Depression, but just when things were turning the corner we entered World War II. Development was put on hold during the war, but this quickly changed once the GIs returned from overseas and another era of prosperity began. Virtually overnight there was a tremendous amount of demand for housing. By 1946, new housing construction quadrupled to over 500,000 homes. In the postwar period, a white picket fence and peaceful green lawn proved very appealing for two-thirds of the fifteen million homes that were built in the 1950s and were constructed in the suburbs.

The decade was also a period of the expansion for the highways, which provided access to more areas by car and truck. Consequently, this enabled all types of real estate (e.g. hotels, industrial and retail centers) to be located further outside the city. Hotel chains like Holiday Inn started popping up along the roadways across the country. The suburban shopping mall also became popular in this era.

As the suburbs grew, the cities slumped. By 1960, there were many urban centers that hadn't seen new office building development in 30 years.

The decay of America's urban areas didn't go unnoticed. Community activism and political pressure led to the creation of a cabinet position in 1965 focused on improving urban housing or what today is known as the Department of Housing and Urban Development (HUD). The central business districts in America's urban centers saw a number of new buildings (both commercial and retail) constructed during the last three decades of the 20th century, spurred by the growth of the service industry, the availability of financing and municipal incentives. Today, real estate is considered one of the most dynamic and healthy sectors in the American economy  after all, people may divest from their stocks, but they always need a place to live, work and shop.

This article is excerpted from the Vault Real Estate Career Guide.
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