Talk of a bubble in Aussie Housing sounds ridiculous to me. The Great Bowling Bubble of 1960 shows you what a bubble really looks like.
What does a bubble look like?
Well, if you believe some people, you’re looking at one right now. See that house? That’s what a bubble looks like.
I know. Crazy, right?
But just so we’re all on the same page, let’s have a look at how a bubble really works.
And so I present to you the Great Bowling Bubble of 1960.
If you’re like most people, you’ve probably never heard of the Great Bowling Bubble. It was never responsible for the kind of carnage we saw in the dot-com bubble, and you won’t find it in economics text books.
But it gives us a great insight into exactly how a bubble works – the dynamics of destruction.
In post-war America there was a relatively short-lived boom in ten-pin bowling stocks. Yep. Ten-pin bowling, that great American pass-time. And I guess this is one of those ‘only in America’ stories.
We think about bowling as being a pretty recent pastime, but the game itself is ancient. Throwing balls at a target has been around since Moses was a minor. Apparently, the modern American game has it’s roots in Dutch immigrants.
But like many bubbles, our story begins with a technological innovation – the invention of the automatic pin-setter in the 1950s.
The thrill of a mechanised, indoor leisure activity was a revolution, and the popularity of the game exploded, especially among blue-collar working Americans.
As a result, the number of bowling alleys in America nearly doubled from 6,600 in 1955 to 11,000 by 1963. Over the same period, the number of people bowling in leagues increased from less than three million to seven million.
And around this time, “action bowling” emerged in New York City and quickly spread. According to the New York Times, this was “a high-stakes form of gambling in which bowlers faced off for thousands of dollars”
“You’d go at 1 in the morning, and there were 50 lanes and the place was packed,” bowling hall of famer Ernie Schlegel (no, I didn’t make that name up) told the Times. “The action was huge back then, like poker is today.”
And with so many people believing that the golden age of ten-pin bowling had come, share prices in bowling companies exploded. Stocks in Brunswick Corporation for example increased a mind-boggling 1,590% between 1957 and its 1961 peak.
And all this euphoria resulted in a huge expansion in the number of bowling alleys. In ten years the number of alleys doubled, from 6,600 in 1955 to 12,000 in 1965.
But there was never the demand to support that kind of capacity. The profitability of alleys slumped, and with it, share prices came thudding back to earth.
Demand never reached expectations. The novelty wore off and people started looking for other things to do. Blue-collar workers also started fleeing the inner-city for the suburbs.
Bowling remained a popular pass-time. President Nixon had a bowling alley installed beneath the White House in 1970! But it’s never regained its peak. Today, there are still less bowling alleys in American than there were in 1955.
So what do we make of all this?
Well first of all, the bowling bubble, like all bubbles is initially carried on the back of supply and demand.
In the early years, there were more people wanting to bowl than alleys to house them. The profitability of alleys spiked, and accordingly, so did their share price. That’s phase 1.
In phase 2, euphoria kicks in. People stop believing that we’re looking at some sort of temporary supply/demand imbalance, and start believing that we’ve entered some sort of new world order. The popularity of bowling would increase indefinitely until every American was bowling, all of the time.
We saw the same thing with the dot-com bubble. People believed we’d entered some brand new golden age of e-commerce, and the ridiculous valuations being given to tech companies were justified.
Phase 3: Reality bites. Supply catches up with, and then over takes demand. People see the golden age is a myth. Over-capacity leads to falling prices and falling profitability. The bubble deflates or pops.
This is pretty classic really.
So how does the Great Bowling Bubble compare with Australia’s housing “bubble”?
Well, phase 1 is about right. We’ve seen a run up in prices because the supply and demand dynamics have driven it that way. Household wealth, low interest rates and Chinese buying have driven up demand and prices have responded.
But what about phase 2? I haven’t heard of anyone talking about some sort of golden age of housing. There’s no revolution in the housing market that suddenly means everyone wants two houses to live in. No radical new way of doing housing.
No. Housing’s just been doing what it always does. Nobody’s making plans on the belief that housing has been through some sort of radical paradigm shift.
And likewise with phase 3. There’s no over-capacity in the housing market. No great swathes of suburbs left empty and waiting for buyers.
In fact, as I keep pointing out, for the past decade, every year has seen fewer houses come on to the market than the year before. Under-supply is a much bigger threat than over-capacity.
And without over-capacity putting pressure on prices, what’s going to prick this so-called bubble?
The Great Bowling Bubble was built on the assumption that bowling was only going to become more popular. When that assumption didn’t hold, the market collapsed.
What’s the equivalent unproven assumption in housing? That our growing population will need more houses? Seems pretty safe to me.
I’d love to think that this is the end of it, but we haven’t heard the last of this bubble talk.
It comes back with every cyclical upswing.