The 1920s Florida Property Bubble

Whether it’s the tulip mania of the 1620s, the railway boom of the 1840s, the dot-com craze of the 1990s, or today’s cryptomania and astronomical prices for SPACs, financial bubbles have been around as long as markets existed. Before a media narrative or envy tempts you, recognize that the next generation of financial booms and busts always come in a new shape and form, but the end of the story is invariably a loss of the investors’ hope and money.

With housing prices in Rochester and many smaller metro areas rising to record highs, a real estate bubble that eventually turned out extremely well many years later may help you make more thoughtful decisions. One forgotten story is the Florida property boom of the 1920s and illustrates well how hastily chasing a great idea can lead early investors into financial waste.

The Wild, Wild (Key) West

In 1918, the United States emerged from the ruinous “Great War” — World War I — as the wealthiest nation on the planet with great confidence about the future. What may have been the best decade of the 20th century soon followed: the Roaring ’20s.

The country was prosperous as never before. New consumer technologies like the automobile and the radio were changing daily life. A growing urbanized middle class had money to spend like never before. The freewheeling atmosphere in the big cities and easy access to credit to exploit the general optimism made conditions ripe for a financial mania.

Henry Flagler, John D. Rockefeller’s former business partner, had extended his railways from the north into West Palm Beach and Miami. By 1912, they had reached Key West — hailed at that time as the most extraordinary engineering feat in U.S. history.

America’s well-heeled soon flocked to Florida instead of France’s Côte d’Azur, off-limits because of the Great War in Europe. The expansion of railroads and the paved Lincoln and Dixie highways for the new automobiles allowed for the arrival of a new type of tourist. This created the perfect conditions for an astonishing land boom in Florida.

From Uninhabitable to Idyllic

As Harvard economist John Kenneth Galbraith observed, “The Florida land boom was the first indication of the mood of the Twenties, the conviction that God intended the American middle class to be rich.”

If Flagler was hailed as the father of Miami, Carl Fisher was the father of Miami Beach.

Before 1913, Miami Beach was a narrow strip of worthless jungle infested with snakes and mosquitoes. The only way to reach the oceanfront was by excursion boat. In less than a decade, this island — 10 miles long and 3 miles wide — was transformed into the “American Riviera,” an exclusive world inhabited by moneyed industrialists of new consumer products and stars of stage and screen produced by the innovation of movie theaters.

Fisher opened The Flamingo Hotel on New Year’s Eve in 1920. The following year, President Warren Harding stayed at one of the hotel’s luxury cottages. He even played golf aided by an unusual caddie — a baby Asian elephant named Rosie.

Fisher had transformed Florida’s image from a land of swamps into a newly discovered paradise by the sea. Boosted by loose credit conditions, a healthy economy and Fisher’s relentless promotion, property prices rose. A land boom ensued, supported by hype and marketing campaigns that infatuated the national media and helped advertising revenues.

Other property developers followed Fisher’s example.

George Merrick, the founder of the idyllic Coral Gables in Miami, even employed silver-tongued former presidential candidate William Jennings Bryan for credibility to convince buyers to move there.

Every day, Bryan would remind prospects that “Miami was the only city in the world where you could tell a lie at breakfast that would come true by evening.”

The promise of massive gains in real estate lured speculators from all over America. By 1925, Miami had 25,000 estate agents working out of 2,000 offices.

The money being made by some people in real estate during those boom days was staggering. Building lots in downtown Miami sold for $1,000 in the early 1900s. By 1925, they sold for between $400,000 and $1 million. Lots in prime locations, such as Flagler Street, ran as high as $70,000 per linear foot. Lots that were 2 miles from the city center had sold for $2,500 a few years earlier yet commanded more than $50,000 in 1926.

Investment advisor Roger Babson wrote, “There were more Rolls-Royces and Lincolns in the state of Florida in 1926 than in any other state in the country.” In the summer of 1926, the Miami Daily News published a single issue that was a whopping 504 pages, mainly consisting of real estate advertisements. It weighed 7.5 pounds.

The boom even led to the rise of a new kind of financial instrument — the Bitcoin of its day. “Binder boys” would show land to prospective buyers. Buyers, in turn, could effectively buy options on the land by paying a “binder,” a nonrefundable deposit due within 30 days. Rather than pay off the balance, the land buyer would often “flip” the binder for a profit to someone else. Binders on lots in Miami were bought and sold as many as 10 times a day.

A Great Opportunity Busted

But the boom eventually turned to bust, as we know with hindsight. In late 1926, the supply of buyers dried up. Many who had bought binders suddenly couldn’t find anyone to sell them to. Newspaper reports began to warn of Florida land scams. Attention turned to the New York financial markets where soaring stocks could be bought and sold on “margin.”

And things got still worse…

A pair of disastrous hurricanes in 1926 and 1928 destroyed much of greater Miami in addition to hitting Hollywood and Fort Lauderdale. By 1931 as the Great Depression was in full force after the great stock market crash of 1929, about three-fourths of the banks in Florida had gone bankrupt. The Florida land boom left behind entire new cities, such as Coral Gables, Palm Beach and Hollywood.

Yet Florida’s leading lights suffered bankruptcy and crippling alcoholism. Addison Mizner, the founder of Boca Raton, was broke by 1930. Merrick died at 55, leaving a paltry estate of $400. In the late 1930s, an associate saw Fisher loitering on a park bench in Miami Beach. “I’m a beggar — dead broke,” Fisher told him. “No family to fall back on.”

And many more investors — especially those late to the party and small-time speculators — lost a fortune investing in the much-hyped “Florida dream.” With Florida property prices soaring once again in 2021 as well as elsewhere, the 1920s Florida land boom still offers sobering lessons for those hoping to get rich quick on a new set of “market opportunities.”

I still recall the big brokerage marketing schemes that left many early retirees of Kodak and Xerox with very little retirement money in the aftermath of the Bust. Yes, eventually some investors did make fortunes, but how many predicted with their life savings that Amazon would become the biggest winner after dropping 95% but could not stay invested until that happened years later?