Working Paper: CEPR ID: DP15657
Authors: David Chambers; Christophe Spaenjers; Eva Steiner
Abstract: Real estate—housing in particular—is a less profitable investment in the long run thanpreviously thought. We hand-collect property-level financial data for the institutional realestate portfolios of four large Oxbridge colleges over the period 1901–1983. Gross incomeyields initially fluctuate around 5%, but then trend downward (upward) for agriculturaland residential (commercial) real estate. Long-term real income growth rates are close tozero for all property types. Our findings imply annualized real total returns, net of costs,ranging from approximately 2.3% for residential to 4.5% for agricultural real estate.
Keywords: real estate; income growth; income yields; property prices; long-run returns
JEL Codes: G11; G23; N20; R30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| property type (R33) | income yields (E25) |
| property type (R33) | total returns (G12) |
| historical income growth rates (N12) | capital gains (H24) |
| ignoring holding costs (G14) | underestimation of riskiness of real estate investments (G41) |