Real Estate Investment Trusts (REITs)
Tax-exempt investment vehicles created by US law in 1960 whose assets grew twentyfold in the early 1970s, financed largely by bank lending, before a wave of defaults in the mid-1970s — cited by land-cycle writers as a channel through which credit fuelled land speculation.
Overview
A Real Estate Investment Trust (REIT) is a company that owns or finances income-producing real estate and, if it distributes most of its income to shareholders, pays no federal corporate income tax on it — a tax-exempt structure created by the US Cigar Excise Tax Extension Act of 1960.[1] Mortgage REITs expanded rapidly in the late 1960s and early 1970s: Fred Harrison documents US REIT assets growing from about $1 billion in 1969 to more than $20 billion by 1972–74, with banks lending roughly $11 billion into REITs over 1972–74 (The Power in the Land, Ch. 8–9).[2] When the property market turned in 1973–74, heavily leveraged REITs collapsed in a wave of scandals and defaults, including the December 1974 bankruptcy of Walter J. Kassuba Realty and the May 1978 default of Chase Manhattan Mortgage & Realty Trust, then the largest US REIT.[2]
Significance
Land-cycle writers cite the 1970s REIT bubble as a case study in how a tax-exempt, credit-financed vehicle can channel bank lending directly into land and property speculation, amplifying a boom and then transmitting its bust back into the banking system — the same credit-land feedback loop central to the land speculation causes cycles narrative. The episode is treated as part of the broader recurring pattern Harrison traces around the ~18-Year Land Cycle, with the REIT collapse falling near the 1973–74 downturn Harrison and later Phillip J. Anderson both associate with that cycle.
See Also
- The Power in the Land — Fred Harrison's account of the REIT bubble (Ch. 8–9)
- Fred Harrison — the author who documented the REIT bubble as part of the land-cycle thesis
- 18-Year Land Cycle — the cyclical pattern the REIT bust is fitted into
- Land Speculation — the general dynamic REITs are cited as an example of
Sources
- Nareit, "Real Estate Investment Trust Act of 1960" — used for the tax-exempt structure created in 1960 and the pass-through dividend mechanism. reit.com
- Fred Harrison (1983), The Power in the Land: An Inquiry into Unemployment, the Profits Crisis and Land Speculation, Universe Books / Shepheard-Walwyn, Ch. 8–9 — used for the REIT asset growth figures, bank lending estimates, and the Kassuba and Chase Manhattan Mortgage & Realty Trust collapses. wiki summary