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

David Chambers, Christophe Spaenjers and Eva Maria Steiner

Working Papers from HAL

Abstract: Direct real estate investments are less profitable and more risky in the long run than previously thought. We hand-collect property-level financial data for four large U.K. institutional investors—Oxbridge colleges—for the period 1901–1970. Gross income yields initially fluctuate around 5%, but then trend downward (upward) for agricultural and residential (commercial) real estate. Net yields are about one third below gross yields on average. Long-term real income growth rates are close to zero. These findings imply real annualized net total returns of less than 4% across all property types. Moreover, real estate investments are associated with considerable idiosyncratic risks.

Keywords: real estate; property prices; rental yields; long-run returns; idiosyncratic risks (search for similar items in EconPapers)
Date: 2020-07-10
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Working Paper: The Rate of Return on Real Estate: Long-Run Micro-Level Evidence (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-02896386

DOI: 10.2139/ssrn.3407236

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