The views expressed herein are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of San Francisco, the Board of Governors of the Federal Reserve System, or the National Bureau of Economic Research. We are particularly grateful to a large number of researchers at universities and central banks around the world who helped with the construction of the historical dataset. Details can be found in the appendix. We wish to thank Philip Jung, Atif Mian and Gernot Mueller for helpful comments and Katharina Knoll for sharing data on homeownership rates and housing wealth. The authors gratefully acknowledge financial support from the Institute for New Economic Thinking (INET) administered by UC Davis. Schularick received financial support from the Volkswagen Foundation. This research was undertaken while Schularick was a Research Fellow of the Hong Kong Institute for Monetary Research (HKIMR). The generous support of the HKIMR is gratefully acknowledged. Early Elias and Niklas Flaming provided outstanding research assistance. This paper unveils a new resource for macroeconomic research: a long-run dataset covering disaggregated bank credit for 17 advanced economies since 1870. The new data show that the share of mortgages on banks’ balance sheets doubled in the course of the 20th century, driven by a sharp rise of mortgage lending to households. Household debt to asset ratios have risen substantially in many countries. Financial stability risks have been increasingly linked to real estate lending booms which are typically followed by deeper recessions and slower recoveries. Housing finance has come to play a central role in the modern macroeconomy.

Financialization shows up in the rising income share of finance (Greenwood and Scharfstein 2013; Philipson and Resheff 2013), the ascent of household debt (Mian and Sufi 2014), as well as the growth of the volume of financial claims on the balance sheets of financial intermediaries (Schularick and Taylor 2012; Jord`a, Schularick, and Taylor 2013). The increasing size and leverage of the financial sector has been interpreted as an indicator of excessive risk-taking (Admati and Hellwig 2013; Aikman, Haldane, and Nelson 2014) and has been linked to the increase in income inequality in advanced economies (Piketty 2013; Godechot 2012), as well as to the growing political influence of the financial industry (Johnson and Kwak 2010). Clearly, understanding the causes and consequences of the growth of finance is a first order concern for macroeconomists and policymakers. Yet surprisingly little is known about the driving forces of these important new trends in modern financial history.