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Real Estate Returns and Inflation: An Added Variable Approach

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Abstract

This study analyses the inflation hedging effectiveness of residential real estate over the 1969-94 period. The results indicate that residential real estate is a significant hedge against both expected and unexpected inflation. These results indicate that since financial assets are not good inflation hedges in periods of high unexpected inflation, including real estate in a portfolio should decrease the variance of the portfolio returns. These results were made possible by the use of the Added Variable Regression Method (AVRM), a measure which has yet to be employed in this context. There are nine variables included in the AVRM framework which are also found to have significant explanatory power relative to residential real estate returns.

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  • Michael T. Bond & Michael J. Seiler, 1998. "Real Estate Returns and Inflation: An Added Variable Approach," Journal of Real Estate Research, American Real Estate Society, vol. 15(3), pages 327-338.
    • Handle: RePEc:jre:issued:v:15:n:3:1998:p:327-338
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    1. Tracey West & Andrew C. Worthington, 2003. "Macroeconomic risk factors in Australian commercial real estate, listed property trust and property sector stock returns: A comparative analysis using GARCH-M," School of Economics and Finance Discussion Papers and Working Papers Series 160, School of Economics and Finance, Queensland University of Technology.
    2. Baral, Srijana & Mei, Bin, 2023. "Inflation hedging effectiveness of farmland and timberland assets in the United States," Forest Policy and Economics, Elsevier, vol. 151(C).
    3. Christou, Christina & Gupta, Rangan & Nyakabawo, Wendy & Wohar, Mark E., 2018. "Do house prices hedge inflation in the US? A quantile cointegration approach," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 15-26.
    4. Taderera, Marimo & Akinsomi, Omokolade, 2020. "Is commercial real estate a good hedge against inflation? Evidence from South Africa," Research in International Business and Finance, Elsevier, vol. 51(C).
    5. Roula Inglesi-Lotz & Rangan Gupta, 2011. "Relationship between House Prices and Inflation in South Africa: An ARDL Approach," Working Papers 201130, University of Pretoria, Department of Economics.
    6. Wen‐Shwo Fang & Kuan‐Min Wang & Thanh‐Binh T. Nguyen, 2008. "Is Real Estate Really an Inflation Hedge? Evidence from Taiwan," Asian Economic Journal, East Asian Economic Association, vol. 22(2), pages 209-224, June.
    7. Kuan-Min, Wang & Yuan-Ming, Lee & T.T.Binh, Nguyen, 2008. "Asymmetric Inflation Hedge of Housing Return: A Non-linear Vector Error Correction Approach," International Real Estate Review, Global Social Science Institute, vol. 11(1), pages 65-82.
    8. Tan, Teck Hong & Khong, Kok Wei, 2012. "The Link between Homeownership Motivation and Housing Satisfaction," MPRA Paper 46890, University Library of Munich, Germany.
    9. Anderson, Hamish D. & Malone, Christopher B. & Marshall, Ben R., 2008. "Investment returns under right- and left-wing governments in Australasia," Pacific-Basin Finance Journal, Elsevier, vol. 16(3), pages 252-267, June.
    10. Fuad Hasanov & Douglas Dacy, 2005. "Measuring and Analyzing Returns on Aggregate Residential Housing," Finance 0510005, University Library of Munich, Germany.
    11. Aqsha, Nur Suhairah & Masih, Mansur, 2018. "Is residential property the ultimate hedge against inflation ? new evidence from Malaysia based on ARDL and nonlinear ARDL," MPRA Paper 91508, University Library of Munich, Germany.
    12. Dirk Brounen & Piet Eichholtz & Stefan Staetmans & Marcel Theebe, 2014. "Inflation Protection from Homeownership: Long-Run Evidence, 1814–2008," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(3), pages 662-689, September.
    13. Amrendra Kumar & Vikash Gautam, 2017. "Gold as inflation and exchange rate hedge: The case of India," Economics Bulletin, AccessEcon, vol. 37(2), pages 1168-1175.
    14. Weida Kuang & Peng Liu, 2015. "Inflation and House Prices: Theory and Evidence from 35 Major Cities in China," International Real Estate Review, Global Social Science Institute, vol. 18(2), pages 217-240.
    15. Zura Kakushadze & Juan Andrés Serur, 2018. "151 Trading Strategies," Springer Books, Springer, number 978-3-030-02792-6, September.
    16. Wei-han Liu & Zhefang Zhou, 2009. "Inflation-hedging Behavior of a Securitized Real Estate Market," International Real Estate Review, Global Social Science Institute, vol. 12(3), pages 221-251.
    17. Das, Mahamitra & Sarkar, Nityananda, 2017. "Re-investigating the anomalous relationship between inflation and equity REIT returns: A regime-switching approach," MPRA Paper 95135, University Library of Munich, Germany, revised 05 Nov 2018.
    18. Mr. Shaun K. Roache & Alexander P. Attie, 2009. "Inflation Hedging for Long-Term Investors," IMF Working Papers 2009/090, International Monetary Fund.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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