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The Rate of Return on Real Estate: Long-Run Micro-Level Evidence

Author

Listed:
  • Chambers, David

    (University of Cambridge - Judge Business School; CEPR)

  • Spaenjers, Christophe

    (HEC Paris)

  • Steiner, Eva

    (Pennsylvania State University - Smeal College of Business)

Abstract

Real estate—housing in particular—is a less profitable investment in the long run than previously thought. We hand-collect property-level financial data for the institutional real estate portfolios of four large Oxbridge colleges over the period 1901–1983. Gross income yields initially fluctuate around 5%, but then trend downward (upward) for agricultural and residential (commercial) real estate. Long-term real income growth rates are close to zero 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.

Suggested Citation

  • Chambers, David & Spaenjers, Christophe & Steiner, Eva, 2019. "The Rate of Return on Real Estate: Long-Run Micro-Level Evidence," HEC Research Papers Series 1342, HEC Paris.
    • Handle: RePEc:ebg:heccah:1342
    DOI: 10.2139/ssrn.3407236
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    More about this item

    Keywords

    real estate; income growth; income yields; property prices; long-run returns;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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