The Total Return and Risk to Residential Real Estate

56 Pages Posted: 6 Apr 2020

See all articles by Piet Eichholtz

Piet Eichholtz

Maastricht University

Matthijs Korevaar

Maastricht University - Department of Finance

Thies Lindenthal

University of Cambridge

Ronan Tallec

Universite de Toulouse 1 Capitole

Date Written: February 29, 2020

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

Suggested Citation

Eichholtz, Piet and Korevaar, Matthijs and Lindenthal, Thies and Tallec, Ronan, The Total Return and Risk to Residential Real Estate (February 29, 2020). Available at SSRN: https://ssrn.com/abstract=3549278 or http://dx.doi.org/10.2139/ssrn.3549278

Piet Eichholtz

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Matthijs Korevaar (Contact Author)

Maastricht University - Department of Finance ( email )

Tongersestraat 53
Maastricht, Limburg 6211 LM
Netherlands

HOME PAGE: http://sites.google.com/view/matthijskorevaar/home

Thies Lindenthal

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

Ronan Tallec

Universite de Toulouse 1 Capitole ( email )

2 Rue du Doyen-Gabriel-Marty
Toulouse, 31042
France

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