Thies Lindenthal
The Total Return and Risk to Residential Real Estate
This paper estimates the total rate of return to residential real estate investments based on 120,658 hand-collected archival observations of prices, rents, taxes and costs for individual houses in Paris (1809–1942) and Amsterdam (1900–1979).
The annualized real total return, net of costs and taxes, is 4.2% for Paris and 5.0% for Amsterdam, and entirely comes from rental yields. At the property-level, the yield at purchase is an important determinant of the total holding period return, even for longer holding periods. In the short-term, idiosyncratic risk is the dominant component of total risk, but its importance reduces over time.
Title of research: Unique Assets, Quality Uncertainty and Noisy Prices
This projects estimates real estate asset uniqueness along previously not quantifiable dimensions, including shape, size, architecture, perceived beauty, maintenance or shape similarity. This richer picture of individual buildings and their comparability to other properties will improve any estimates of fundamental value. More interestingly, though, it will reveal distributions of transaction values in relation to fundamental value. Since uniqueness of the assets co-determines the availability of information from comparable sales, I hypothesise that uniqueness is also linked to the absolute deviations of sales prices from fundamental values: If little is know about fundamental value, then sales prices will contain more noise.
