This paper computes an aggregate real after-tax rate of return on residential real estate in the United States. We account for net rental income, capital gain, and subsidies due to tax provisions for homeowners in constructing a total return measure. We also compute separate returns to owners and rentiers (that is, households who rent to others). Both quarterly and annual data over 1952-2000 period are used in the analysis. We compare our measure of return with that in the literature and analyze how housing compares to other assets in the household portfolio. Our approach provides a more comprehensive measure of return than that found in the literature. We confirm that residential housing provides a high average return and low volatility, has low correlation with other assets such as stocks and bonds, and exhibits high positive correlation with inflation. The efficient frontier analysis shows that the residential housing providing diversification should be an important part of the household portfolio. Our results also indicate that housing may be as good an investment as stocks (S&P 500).
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by EconWPA in its series Finance with number
0510005.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: