The Total Return and Risk to Residential Real Estate

75 Pages Posted: 6 Apr 2020 Last revised: 12 Nov 2020

See all articles by Piet Eichholtz

Piet Eichholtz

Maastricht University

Matthijs Korevaar

Erasmus School of Economics

Thies Lindenthal

University of Cambridge

Ronan Tallec

Universite de Toulouse 1 Capitole

Date Written: November 12, 2020

Abstract

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

Eichholtz, Piet and Korevaar, Matthijs and Lindenthal, Thies and Tallec, Ronan, The Total Return and Risk to Residential Real Estate (November 12, 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)

Erasmus School of Economics ( email )

Netherlands

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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