The Total Return and Risk to Residential Real Estate
91 Pages Posted: 6 Apr 2020 Last revised: 22 Jan 2021
Date Written: January 21, 2021
We estimate total returns to rental housing by studying over 170,000 hand-collected archival observations of prices and rents for individual houses in Paris (1809--1943) and Amsterdam (1900--1979). The annualized real total return, net of costs and taxes, is 4.0% for Paris and 4.8% for Amsterdam, and entirely comes from rental yields. Our returns correlate weakly with the implied returns in Jorda et al. (2019) and are substantially lower. We decompose total return risk at the individual asset level, and find that yield risk becomes an increasingly important component of property-level risk for longer investment horizons.
Keywords: real estate, return, idiosyncratic risk
JEL Classification: G11, G12, R30, R31, N20
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