DP15657 The Rate of Return on Real Estate: Long-Run Micro-Level Evidence
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.