The Total Return and Risk to Residential Real Estate

New paper with Piet Eichholtz, Matthijs Korevaar, and Ronan Tallec;
accepted for publication at Review of Financial Studies.

Abstract:

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.

Real Total Returns on Residential Real Estate, Paris
Real Total Returns on Residential Real Estate, Amsterdam

Full paper: The Total Return and Risk to Residential Real Estate

Author: thies

University Senior Lecturer (Associate Professor) for Real Estate Finance, Cambridge