The Rate of Return on Real Estate: Long-Run Micro-Level Evidence
59 Pages Posted: 25 Jun 2019 Last revised: 6 Jan 2021
Date Written: January 5, 2021
Real estate—housing in particular—is a less profitable investment in the long run than previously thought. We hand-collect property-level financial data for the institutional real estate portfolios of four large Oxbridge colleges over the period 1901–1983. Gross income yields initially fluctuate around 5%, but then trend downward (upward) for agricultural and residential (commercial) real estate. Long-term real income growth rates are close to zero for all property types. Our findings imply annualized real total returns, net of costs, ranging from approximately 2.3% for residential to 4.5% for agricultural real estate.
Keywords: real estate, income growth, income yields, property prices, long-run returns
JEL Classification: G11, G23, N20, R30
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