The Total Return and Risk to Residential Real Estate
75 Pages Posted: 6 Apr 2020 Last revised: 12 Nov 2020
Date Written: November 12, 2020
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. At the property level, yields are persistent over time, even for long holding periods, so that yield risk becomes an increasingly important component of property-level risk for longer investment horizons.
Keywords: real estate, return, idiosyncratic risk
JEL Classification: G11, G12, R30, R31, N20
Suggested Citation: Suggested Citation