The Rate of Return on Real Estate: Long-Run Micro-Level Evidence

50 Pages Posted: 25 Jun 2019 Last revised: 26 Sep 2019

See all articles by David Chambers

David Chambers

University of Cambridge - Judge Business School; CEPR

Christophe Spaenjers

HEC Paris - Finance Department

Eva Steiner

Cornell SC Johnson College of Business

Date Written: September 25, 2019

Abstract

Direct real estate investments are less profitable and more risky in the long run than previously thought. We hand-collect property-level financial data for four large U.K. institutional investors—Oxbridge colleges—for the period 1901–1970. Gross income yields initially fluctuate around 5%, but then trend downward (upward) for agricultural and residential (commercial) real estate. Net yields are about one third below gross yields on average. Long-term real income growth rates are close to zero. These findings imply real annualized net total returns of less than 4% across all property types. Moreover, real estate investments are associated with considerable idiosyncratic risks.

Keywords: real estate, property prices, rental yields, long-run returns, idiosyncratic risks

JEL Classification: G11, G12, G23, N20, R30

Suggested Citation

Chambers, David and Spaenjers, Christophe and Steiner, Eva Maria, The Rate of Return on Real Estate: Long-Run Micro-Level Evidence (September 25, 2019). HEC Paris Research Paper No. FIN-2019-1342. Available at SSRN: https://ssrn.com/abstract=3407236 or http://dx.doi.org/10.2139/ssrn.3407236

David Chambers

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
44 (0)1223 339700 (Phone)

CEPR ( email )

London
United Kingdom

Christophe Spaenjers (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Eva Maria Steiner

Cornell SC Johnson College of Business ( email )

465B Statler Hall
Ithaca, NY 14853
United States

HOME PAGE: http://https://sha.cornell.edu/faculty-research/faculty/ems457/

Register to save articles to
your library

Register

Paper statistics

Downloads
268
Abstract Views
1,588
rank
115,828
PlumX Metrics