Reaching for yield and the housing market: Evidence from 18th-century Amsterdam
This excellent paper by Matthijs Korevaar in the Journal of Financial Economics explores the links between financial markets and real estate. Absolutely worth a read!
“Do investors reach for yield when interest rates are low and does this behavior affect the housing market? Using the unique setting and data of 18th-century Amsterdam, I show that reach-for-yield behavior of wealthy investors resulted in a large boom and bust in house prices and major changes in rental yields. Exploiting changes in the supply of bonds, I show that investors living off capital income shifted their portfolios towards real estate and other higher-yielding assets when bond yields were low and decreasing. This behavior exacerbated house price volatility and increased housing wealth inequality.”