The Total Return and Risk to Residential Real Estate

Abstract

This paper estimates the total rate of return to residential real estate investments based on 120,658 hand-collected archival observations of prices, rents, taxes and costs for individual houses in Paris (1809-1942) and Amsterdam (1900-1979). The annualized real total return, net of costs and taxes, is 4.2% for Paris and 5.0% for Amsterdam, and entirely comes from rental yields. At the property-level, the yield at purchase is an important determinant of the total holding period return, even for longer holding periods. In the short-term, idiosyncratic risk is the dominant component of total risk, but its importance reduces over time.

Keywords: real estate, return, risk

JEL Classification: G11, G12, R30, R31, N20